Franchising Business

Franchising Business and Various Problems Associated With It

Small business owners, or people who’re considering dipping their feet in this field, often stumble upon the idea of opening a franchising business. Why wouldn’t they? With the right proposal and tender notices, you could be making a lot of money, as compared to your competitors in the same field.

Through this article, we’re going to discuss various factors associated with franchising and franchising business models on a very small level – so much so that, with the right kind of investment and decisions, you could easily start your own empire. Let’s get started, shall we?

 

Basic Definition of Franchising:

Franchising has two part definition. First of all, there’s a franchisor and second of all, there’s a franchisee. Both of these entities are quite different from one another, and are often confused by startup business personnel – especially by those who don’t know anything about franchising.

Basically, a Franchisee is a fellow who signs some kind of contract with a Franchisor, which grants franchisee the rights to run a franchisor’s business. For instance, there’s a big cellphone company in your country and they’ve got tons of outlets all over different cities.

This company will be called franchisor, and you will be the franchisee, if you’re granted permission to open a new office that represents the said company, alongside its share of services in your locality. Do note that a franchisor has the right and authority to implement his/her own business model, and fee structure on your franchise.

Again, coming back to the cellphone company example; if you have won the contract to run the company’s services in your area, at a small level, the company will ask you to use its name, logo, business model and all the marketing rights that define its services.

What does the Franchisee Get In Return?

Good question. The franchisee, being you in this case, gets a small percentage of income that’s incurred or generated as per monthly revenue. This monthly revenue is dependent on your performance and extra marketing capabilities, and the more sales you’ll make; the more profit you’ll be making. In a layman’s term, think of this franchisee/franchisor relationship as an affiliate marketing network.

What Are The Different Types of Franchises?

Moving on towards the types of Franchises, we’ll make an attempt to explain everything associated with this platform. You should know that Franchising, from a general perspective, is a ginormous business platform, with tons and thousands of possibilities and new business models being discovered every few weeks/months.

Hence, it is safe to say that Franchising is not limited to any specific type. Every year, something new is introduced, and it clearly replaces the old Franchise categories. Let’s take a look at the hottest Franchise trends in the market:

• Business Franchise:
  • Business Franchise category/type is just like the models that we explained in the definition part of this article. In this type of Franchising, the franchisee, after signing a contract with franchisor, grants the rights for use of its company logo, trademark, and all the rights to use the lead generation system.
    • By a long shot, this type of Franchising is one of the most profitable business platforms. With a small investment and a couple of Franchises, you could be making thousands of dollars easily. However, it will require a lot of hard work, documentation maintenance and record keeping on your behalf.

 

• Product or Trademark Franchise:
  • This type of Franchising is considered to be the best business model for those franchisors that need to expand their business, or services, in terms of geographic campaigns.
  • It is pretty much similar to the above example, but in this type, the franchisors basically expect the franchisee to make full use of advertisement, marketing modules and such other factors that may help the franchisor in running the company/business to its full potential.
    • The good part of this Franchising category is the fact that there’re no royalty fee structures associated with it. You have more room for running the business, as compared to other types of Franchising.

 

What Are The Cost Factors Regarding Franchises?

Oh yeah, this part of the business is often ignored by people at a deeper level of business. Most people who don’t have the experience of starting a Franchise, they simply consider taking initial startup costs of establishing their business.

An expert will always go beyond the initial cost factor because of the fact that a franchisor receives tons of proposals. These proposals are all requests on behalf of the franchisee, asking the franchisor to allow the said franchisee to start the business. Now seeing to the fact that you’re not the only one who submitted the proposal to the franchisor, what factors are going to make your proposal outstanding.

Also, if you’ve stated down a very low cost model in your proposal to the franchisor, you’ll probably get accepted. For example, you roughly stated that you’re happy to represent the franchisor for as low as 1% of the total monthly income that you generate for the franchisor.

Without any doubt, your contract will be accepted, BUT you’ll end up losing a huge amount of money because you simply agreed to give most of it to the franchisor. Remember the proposal? So for every amount of money you’ll lose, it is taken as a cost factor in business terms.

Let’s take a look at some other aspects of cost related to Franchising:

• First of all, you’re supposed to multiply all your savings by 3. The savings are basically the cost of opening a Franchise after your proposal is accepted. These savings are also the cost that you are expected to afford, as soon as the business is its operational mode.

 

-          The cost is also calculated in terms of your business format Franchise. You have to pay an up front fee to the franchisor and to all those companies where you’ll be buying your resources from. If it is a cell phone franchise that you’re opening, you’ll need to hire a couple of customer care fellows, desks, air conditioners, land line phones and stuff like that.

• Ongoing payments can be explained with the example of those utility bills that you’ll have to pay every month. Also, don’t ignore the tax factor because the IRS would love to pound you with a couple of heavy duty fee modules.
• This is why, you need to carefully plan your offer to the franchisor, so that after all the cost has been paid off, you’d still end up making some money for yourself. Remember, it’s not a charity business that you’re running; you need to support yourself and your family.

 

-          Same goes for product and trademark Franchise. If you’re going to generate leads for your franchisor, you’re going to have to bear with all the expense and fee regarding marketing department of your franchise. Without marketing, and side contracts, you won’t be able to generate leads effectively.

 

Can I Get Further Information on Business Format Franchising?

Of course you can, and this is why we have written down some extra info to help you get aware of the ins and outs of this type of Franchising. Take a look below:

1. You can assume the role of a franchisor! How so? If you’re running a home based business of some kind, then after a huge volume of sales and savings, you can take off with licensing a specific business agreement to your franchisees.
   1. For instance, if you have a home based bakery, you’re going to need the product or trademark category Franchises to “help” you with generating more customers. This was just a simple example of what you can expect from being a franchisor.

 

1. If you’re a franchisee, you need to ask the Franchisor for an operations business manual. Most likely they’ll give it to you because that’s how things are supposed to work. The way that business format or manual is set up, it all depends on the Franchisor, so you don’t have to worry about most of it.

 

1. By signing a contract, you literally agree with the Franchisee, or the Franchisor, to all the obligations of the said business. This area normally covers all the cost factors that are directly or indirectly related to the business. It is strongly recommended that you read all the terms carefully.
   1. If you can, you should hire a lawyer to help you understand the Franchise business terms. The lawyer will charge you some fee, but it is well worth the hassle.

 

 

 

Some Franchise Ideas For Startup Entrepreneurs:

For your consideration, we put together a small list of some Franchise ideas. You can take a look into them and see what they’re all about:

-          Hobby Town USA:

• Hobby Town USA exploits the inner child in every person. This company deals in all kinds of miniature toys, such as rockets, military cars, board games, railroads, trains, boats and practically everything that has to do with a person’s hobby.
  • It’s a great Franchising idea for people who want to have fun and immense number of sales at the same time.

 

-          Wireless Zone:

• The brand new spick and span Wireless Zone is a company that was previously known as The Car Phone Store. Ever since its name change and a couple of innovative ideas from founder Russ Pheldon, the company has been doing well. This company has more than 250 outlets in all over the US.
  • It’s not a big company, but compared to other phone conglomerates, it’s not a small company either. You can sign up for a Franchise contract with these guys and see if it works for you.

 

-          Batteries Plus:

• As the name obviously suggests, this company has everything to do with high efficiency batteries, which vary over AA, AAA C, D and such similar models. From tiny watch batteries, to heavy duty long lasting car batteries, Battery Plus is quite an eye candy for interesting Franchisees.
  • The company claims that its franchisees have been doing pretty well, ever since they all became operational. By the way, batteries will be replaced soon by some high end/ low cost product, so it wouldn’t be a nice idea to get a Battery Plus franchise outlet from a long term perspective.

 

-          Gateway Newstands and Cigars:

• Even though newsstands are becoming obsolete due to social media interaction on the internet, Gateway is still raking in profit from all over the country. How so? Well, they’ve got tons of Franchisees who love to advertise and tout out company’s services and products.
  • As far as the Cigars and cigarettes are concerned, Gateway supports those packs with lottery tickets, gums, fast food and shiny little accessories. This is a good business deal for those people who expect to generate long term profit, in the form of small, but steady, income streams.

For further research on this topic and anything associated with it, feel free to surf the internet. But more importantly, get in contact with a business expert who can create a business model for your supposed franchise. This is the best way of getting ideas and assessing expenses beforehand.

More so, the Better Business Bureau representatives should also be consulted in terms of opening a franchise or becoming a franchisor. Remember, it’ll help you a lot if you are willing to go through the hassle of carrying out as much research as possible. People who haven’t been careful with their taxes, franchisor policies and hidden rates, and stuff like that; they’ve suffered a lot and lost millions of dollars.

All that cash could’ve been saved, had they been careful and researched the market associated with the said franchise. As a side note, don’t follow the ideas or opinions expressed in this article, to the letter. It is strongly advised that a professional should be contacted before launching any franchise campaign, at any level.