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The Advantages of Franchises

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Maybe you've thought about starting your own business, but you're worried that your venture might flop before it gets off the ground. You're concerned that you'll have trouble interesting consumers in your product, that inexperience will cause you to make costly mistakes or that your business concept just won't work.

Consider franchising. A franchise is essentially a replica of an existing business. When you purchase a franchise, you buy the rights to use the parent company's name and to sell its product or service in exchange for an up-front franchise fee (prices vary between industries) and ongoing royalties, usually 3 percent to 6 percent of sales. While buying a franchise does have certain disadvantages, the right franchise can provide a measure of security that is often missing from new ventures. Some of the most important advantages include:

An established brand. Franchises often sell products with regional, national, or even global recognition. A hungry traveler stops at Burger King because she knows what a Whopper tastes like. Likewise, a prospective real estate buyer might feel more comfortable buying property from Century 21 than from, say, Harvey's Happy Huts. Such brand-name clout helps your business in two ways: It increases revenue by bringing in customers, and decreases the amount of time and money you have to spend on marketing.

Training. Franchisers generally provide training to new franchisees. Such training can be extremely valuable for neophyte entrepreneurs.

Volume purchasing power. Franchisers buy parts, raw materials or ingredients in bulk, and therefore can negotiate far better deals with suppliers than an independent small business owner can. Those cheaper supplies allow you to charge customers less and to increase your profit margins. Many franchises also offer centralized purchasing, which frees you from worrying about how and where to buy many of your supplies.

Advertising. Many franchisers provide constant national or regional advertising (ever had a McDonald's jingle stuck in your head?). Furthermore, two or more nearby franchises can pool funds and advertise together.

A proven business model. Many franchisers have succeeded for one major reason: Their business models work. Moreover, your franchiser probably has encountered -- and overcome -- most of the problems you?ll face. You can benefit from that experience and avoid a lot of costly trial and error.

Accounting and budgeting systems. When you buy a franchise, you adopt the accounting and budgeting systems of the franchiser, which eliminates the complicated task of devising and implementing your own.

Other help running your business. Franchisers want your business to succeed; your success translates to higher royalties for them. To that end, many franchisers provide ongoing assistance on issues ranging from employee training to marketing.

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Last modified: May 26, 2001