Franchising is when someone uses another person’s idea or business formula to start their own business.
The person selling the franchise namely the franchisor grants the independent operator namely the franchisee to copy and distribute its products and use its trademarks and name in return for a percentage or royalty payment of the gross monthly /yearly sales. In most cases the franchisee will also have to pay an upfront one time franchise fee also to the franchisor. The franchisee must then follow certain guidelines already set up by the franchisor.
The history of franchising began in the 1850’s when Isaac Singer began a franchise in order to distribute his sewing machines outside of his geographical area. He began by selling licenses to entrepreneurs in different parts of the country.
In 1955 Ray Croc took over a small chain of food franchise and built it up into the most successful fast food franchise in the world namely McDonald’s.
Other modern day examples of successful franchises are Subway, Domino Pizza, KFC and Pizza Hut. There are currently 120 different franchises worldwide which include automotive, cleaning and maintenance, health and fitness and financial services franchises. According to Franchise Associations over 4% of all businesses are franchises.
Franchise products very often entail the franchisor providing advertising, marketing, training and even business loans as well as offering other support services. Franchise contracts normally last between five and thirty years.
Franchising is available to anyone and is particularly popular because it offers people the opportunity to buy into a brand and a business model that is already established and very well known. Today franchising is helping thousands of individuals to be their own boss and to operate their own business. There is also more likelihood of starting a successful business when a proven business formula is already in place. It is claimed that franchising has helped the economy grow in over 80 countries and generates over $4 trillion in sales.
However as with any business there are disadvantages to a franchise business. The main one being that it can be very costly to set the business up especially when having to purchase premises and having to employ staff. There is also the expense of having to pay royalties from any profits. Often the need to find the initial payment for the franchise opportunity can also delay starting up your own business.
There are however other businesses that can be started which are similar to the franchise business concept but without the disadvantages. There are many other business opportunities that too offer an established business system that can be set up straight away but without the need to pay any franchise set up costs or royalties. These opportunities offer the opportunity to set up a business working from home hence saving having to outlay vast amounts of money to buy premises. They can very often be set up with the simple requirements being to own a computer and have a phone line especially with the many internet home based business opportunities that are now available. These companies again offer the security of training and a proven business system to set up that is already successful. You can therefore set up your home based business straight away. Another advantage in this type of business is that you are not compelled to follow any set guidelines as you would be as a franchisee.
Indeed anyone can start a business but it is advisable before considering buying a franchise business to carry out a thorough research of the company and its products and to check details of how much cost is involved to be part of its franchise. It is also prudent to check out other business opportunities which also offer the same advantages that a franchise offers namely training, a one to one support network and a proven successful business system but without the large financial set up costs and royalty payments that can result in delaying setting up your business and reduce your profits. After all if you are going to take that all important step to become you own boss and start your own business it’s important to ensure that you make the maximum profit for yourself to secure your ongoing success and prosperity.