How To Get Into The Franchise Game

Franchising is one of the best ways to start a business in any industry. The franchisee purchases a license from a business owner, the franchiser. The franchisee gains access to the business’s proprietary knowledge, practices and trademarks and can sell products or services under the franchiser’s name. In exchange, the franchisee pays the franchiser start-up and annual licensing fees. This arrangement is not one-size-fits-all by any means. Franchising allows business owners and entrepreneurs to use one another’s resources in a mutually beneficial way. To get into the franchise game, would-be entrepreneurs can buy a new franchise, an existing franchise, the master franchise rights or a conversion franchise.

Buying A New Franchise

This involves purchasing a new business, opening an untouched market and starting from scratch. The entrepreneur who purchases the franchise is the owner/operator and is completely responsible for success and failure. The opportunity to build a business from the ground up is exciting to many people. The downside includes going into a new franchise with less capital than is necessary to handle employees, inventory and other details. The location itself could prove a poor choice for a new business. New franchises always face this kind of risk.

Buying An Existing Franchise

The primary advantage of this option is the ability to examine existing performance numbers. Sales and expense data are available for every year the franchise has been in business. An entrepreneur who purchases an existing franchise that is doing poorly can transform it into a strong enterprise, reaping the financial benefits. The downside is the entrepreneur must abide by the terms of the existing franchise agreement. Additionally, other risks include dishonorable employees, angry suppliers and malfunctioning equipment. These come with the territory. Existing franchises have a reason why they are not doing well.

Buying Master Franchise Rights

This route is much more aggressive. Master franchisees are set up as local or regional representatives of the business owner. The primary role of the master franchisee is to provide field support and training, for which he is compensated by the franchisor, usually by receiving a cut of the revenue in his territory. Some master franchisees are responsible for recruiting efforts, generating another income source for their efforts. A master franchisee position is typically sold to an existing franchise holder who is successful and wants to expand his role.

Buying A Conversion Franchise

A conversion franchise offers the best of both worlds. Small, independent businesses can link themselves to a national brand, which lends them prestige and reputation. This allows entrepreneurs like real estate brokers, chefs and other small businesses to use a nationally-known brand affiliation while maintaining their idiosyncratic network of customers and suppliers. Conversion franchises offer the opportunity to take advantage of getting local leads from a national advertising service or having a foothold in a national reservations system. This allows entrepreneurs to take their business to the next level without starting a franchise from scratch. Conversion franchises often have lower fees than other franchising arrangements.

Before buying a franchise you’ll need to hire an accountant.  There are plenty of good accountants out there, although some do cost more than others.  If you speak to the folks at the folks there can usually point you in the right direction.

Image provided courtesy of Re:group.

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