A franchise can be an excellent entrepreneurial opportunity. Buying into a company that already has a workable business model is much easier than starting from scratch. Franchisees benefit from an established brand and company infrastructure. In many cases, there may already be a built-in customer base eager to patronize their business as soon as it opens its doors. However, individual franchise locations can fail just as easily as an independent business started directly by an entrepreneur.
However, not all franchise opportunities are equally successful and profitable. As a result, the three concerns below can all be important considerations for those contemplating buying into an existing brand.
Territory protections and expansion
One of the reasons that franchises can be lucrative for entrepreneurs is that they might be the only location of a popular brand in a sizable geographic location. Many franchise opportunities come with territory protection. The company promises not to allow another franchise to open within a certain distance of someone’s new facilities.
Potential franchisees need to consider how much distance the company guarantees between their business and someone else’s. The duration of that agreement is also important. If it only lasts for one year, the franchising may start struggling when competitors open up nearby. Additionally, they may need to consider the implications of territory rules on plans for expansion. They may not be able to open additional units in a saturated market.
Every franchisor has specific requirements for franchisees. Typically, those requirements include having a certain amount of capital set aside beyond what someone intends to invest in the business initially. Those capital requirements are often quite significant and may make certain franchise opportunities prohibitively expensive.
Training and marketing support
Simply buying into a pre-existing company does not guarantee success or profit. The person opening the franchise likely requires training on how to run a business and conform to the franchisor’s standards. The amount of training provided by the franchisor can therefore be very important to the successive individual franchisees. The company’s commitment to local marketing is also an important consideration. Advertising campaigns that don’t reach local platforms may not help drive business to a franchisee’s location.
Rather than rushing into a franchise opportunity, entrepreneurs and investors need to consider their options very carefully. Learning more about how a franchise operates, and seeking legal guidance accordingly, can help someone determine what opportunities might be best for them.