Understanding how franchising works might take some time. Plus, each franchise has their own way. But essentially, if you enter a franchise agreement you pay for using their business name and processes, and agree to use those things correctly in exchange for owning a business.
What Is Franchising?
To franchise something, the company allows buyers to essentially license the name, buy the tools at wholesale prices, and to market the business per the franchise documents. A franchise can be a bricks-and-mortar business, an online business, or even a particular process of doing business such as some types of marketing solutions.
Advantages of Franchising
The advantage of franchising is that if you do the right research and choose well, failure is less likely. The reason is that the business systems have been tested. All you must do is take the training and follow it. When you’re unsure, you’ll have people to talk to about ideas and ways to do better. Some studies show that a legitimate franchise has a 95 percent success rate.
Disadvantages of Franchising
While you’re considered an independent business, you’re still working for people who are like bosses. You’ve entered a legal agreement with them to run the business the way that they dictate that you run it. And due to this, your business relates to all the other franchises. So if one person does something that makes the news, it could affect your business negatively.
There are a lot of different fees outside of the charge for buying into the franchise, which is payable upon signing the contract. But then you’ll have ongoing fees for a product that you may or may not be required to buy from them. Plus, you will be responsible for royalties that may be as high as 12 percent of revenues. Don’t forget other costs such as build-out, lawyer fees, employees, and so forth.