Retail Franchise

There is probably not one person of adult age who has not been exposed at one time or another to the world of the retail franchise. We see them every day, and we certainly give them a good portion of our business, whether it is food, drink, or other merchandise. Of course, the ones that tend to come to mind first are the food chains such as McDonald’s, Burger King, Dunkin Donuts, Kentucky Fried Chicken, and many more. In fact, there may be stores in which we shop that we do not even think of as being a franchise, but rather just another store that is part of a big chain of retail outlets. In some cases that may be true, but it is just as likely that the store is part of a franchise. Such retail franchises are big business across America and even the world and many would be business owners are looking into the retail franchise business.

Franchises have been around for many years, and for some people, it’s the easiest way to enter into a new business. After all, you are not doing the work of building the business and advertising because you are cashing in on a name that people already trust. A retail franchise has already made a name for itself and the potential business owner can actually make money off of the notoriety of the retail franchise chain under consideration. Instead of worrying whether your business is going to flourish, you can concentrate on bringing in customers who are not aware that you are now in business. The name is already on the minds of customers, so all you have to do is draw them in, and that means doing some advertising on your own so that everyone will know you are ready to do business in the location of your choice. A business owner interested in a retail franchise is going to be more concerned with running the business according to the parent company’s instruction and guidelines. A franchise allows you to cash in on the reputation of someone else’s good name, and you need only work to maintain that reputation.

How does a franchise differ from a business that you start from scratch? Quite simply, a franchise means that you buy into a business that is already established such as McDonald’s, Burger King, Dunkin Donuts, Quality Inn, Comfort Inn, and other similar chains. Although in some cases, the locations may actually be a part of the corporate entity, in most cases they are franchises. In essence, you are still a business owner, because you pay a price to open a business using the reputation of someone else. In return, they provide all of the advertising, set up ideas, prices, business hours of operation, and even the vendors from whom to purchase supplies. Depending upon the terms of the franchise, the parent company may even determine what products you should sell and how you should set up your displays.

Certainly, there is less freedom when buying into a franchise than when you start your own business from the ground floor; however, a franchise is less risky because the business is already a name that people know and trust. Starting from the ground up may sound like an interesting concept, but you have to work hard to build your reputation, and if there is a great deal of competition in the field in which you are seeking to build a business, it can be very difficult. An example of that is building a new chicken restaurant across the street from the Kentucky Fried Chicken that has been in the same location for several years. You have to build a reputation, and it’s going to be difficult to compete with the “secret recipe.” It would be much more economically sound to buy into the franchise and profit from what is already established.

If you’re looking at price as a way to determine what way you want to go with a franchise, then you’re likely to be disappointed. First, buying into a franchise is not cheap by any means. The success of the parent company will determine what price the corporation can get for selling a franchise. The more popular the company into which you are buying, the more it is going to cost you to enter into that business. For example, you can open a Dollar Store for under $50,000, but Athlete’s Foot costs over $200,000. One would think the Dollar Store is more popular than that, but when you compare it to buying athletic shoes, it doesn’t hold a candle. People can certainly do without what is in the Dollar Store if they must, but shoes are mandatory, especially for anyone who plays any kind of sports.

Many people think the corporation operates more of the chain stores than they do, and they are shocked to find out how many stores that we frequent daily are not corporate stores at all but franchises. For the entrepreneur who isn’t too business-savvy, this is the perfect way to get started owning your own business without having to worry about making a mistake and the business going under before you ever make a decent living at it. The cost of a franchise includes the training and all of the educational materials you need to make your business a success. You do not have to worry about what to charge, what to carry, how to set up your store, or other minor things because those things are all defined in the franchise agreement.

There are no rules that say the same franchise owner cannot own several different retail establishments of the same chain. It is no different that if you opened a drugstore in your neighborhood, and a few years down the road bought a building and opened another one. The only difference is that you are capitalizing on what someone else has already started instead of having to build the reputation yourself. That doesn’t mean that you will not have to do any work advertising or building the reputation of your individual establishment, but you won’t have to worry about building an entire company profile.

Many franchise owners, do in fact, buy into the very same chain, and sometimes at the same time. In fact, sometimes they even buy into an already existing location that is owned by the corporation, allow the staff to remain there, and simply allow everything to remain as it is. In some establishments, this is the best kind of franchise arrangement because the new franchise owner is free to continue to buying into other chains because he does not have to hire new staff or go through any training with the new location. Of course, you will need to build a rapport with the staff that is at the new location because people tend to get a little fearful for their jobs when new owners take over a business. You want to reassure the staff at the new location that you do not plan to make any changes, that everything will stay as is and that your sole purpose was not to disrupt things but to buy into something already doing well financially.

Although some chains may allow an interested party to buy into the chain without knowing a thing about what they are doing, most off the larger and more established parent companies require an interested franchise owner to become educated and trained in the business. They certainly don’t want to sell a franchise opportunity to someone who knows nothing about what they are doing only to have the business falter. Certainly, the franchise owner is going to take the financial loss, but the parent company is going to suffer in terms of reputation. This is because those surrounding the business will not know that it failed because of mismanagement or lack of business sense, and as such, the potential is there for people to feel that there is something amiss within the corporate structure. They will become concerned that the failure of one franchise is a sign that the corporation is struggling financially or is losing business.

Depending on the corporation, they may look for a specific net worth before they will even consider the application. This is because they know that it will require time to build the franchise to a profitable level, so they want someone who is already able to stand on their financial worth and will not fall onto hard times while the profits are minimal. Also, parent companies want to ensure that a franchisee will be able to easily afford the payments they must make in order to maintain the retail franchise.

Unlike being in business for yourself with something you have built from the ground floor, as a franchise owner, you have an obligation to protect the reputation of the corporation from which you bought the franchise. They, after all, gave you the benefit of their good name for the price you paid to own the franchise, so you own them the benefit of protecting their reputation. If you qualified to purchase a franchise, then someone feels you have enough perceptive and business knowledge to do a good job. Do not let them down by dawdling and not running the business in a cost-effective and professional way. One of the worst ways to do this is to post your hours in the door for customers to see and routinely close earlier or open later than the hours that are posted.

One of the most important things you can do before you even begin talking about opening a franchise is to ask yourself if you are financially and emotionally capable of owning a franchise. There is a lot of hard work that goes into the day to day operations of a retail franchise. Remember, the rules are not going to be all yours, so even though you own the building and collect the profits, you may not have a say in what time to open, close, what products to carry, or even what holidays to close. In that respect, you may feel like you are working for someone else rather than owning your own business, so you have to ask yourself if you are willing to abide by the rules that someone gives you. Some people decide to open their own businesses so that they don’t have to listen to others tell them what to do, and if that is your purpose, owning a franchise is not the business for you.

A franchise must be run with efficiency and dedication, or the owner stands to face chastisement from the corporation as sales falter because of poor management. Remember that when you train as a franchise operator, you are relying on people who have years of experience and know what works. To assume an aura of knowing more than those more experienced is courting disaster. In order to be successful, you must work with those who are already successful and know what it takes to remain in business. If you are not willing to be part of a team of successful franchise owners, then you do you not belong in business as a franchise owner. No other business requires as much dedication as that of a franchise owner because he is walking on the heels of someone else and must meet their guidelines in order to be successful in business.

Before you consider buying a franchise, you will have to be prepared to obtain financing for the project. The corporations do not provide financing, although they may assist you with some recommendations if you are new to the franchise world. The entire process can take anywhere from three weeks to even a couple of months if the franchise deal is quite extensive. It is not, however, something that you can go today, pay the money, sign some papers, and tomorrow the business is yours. Of course, that is not possible with any commercial transaction unless perhaps when only cash is involved. Ultimately, financing the retail franchise is a timely endeavor and just the very beginning of all of the work that lies ahead for the prospective franchisee.

How does this affect the new potential franchise owner who has never owned a business and whose personal credit is quite marked? Though not impossible, with the right lender, you can still obtain financing, but it may not be as favorable as it would be if you had good credit. If you have had commercial loans in the past, it is likely that lenders will look at your commercial loan experience more so than your personal loan experience; however, if there is no commercial loan experience, they have nothing else to go by except your personal credit history. If you think there may be a problem, and there are little things on your credit report, it may be advisable to clear those items before you attempt to borrow money to finance a franchise. The cleaner your record is, the smoother and quicker you can pass through the loan process and receive the funds to open a franchise. You will have enough to keep you busy without having to worry about running around to get credit items off your credit report while you are waiting for the approval on your loan application.

We have already addressed the issue of this not being the business for someone who wants to be fully in charge, but there are other things that you must consider before you become a franchise owner. Franchise agreements are different from company to company, but in most cases, in addition to the purchase price of the franchise, a franchise owner must pay the corporation a percentage of the profits each month – for some franchises this is for a certain number of years, but for others it is the lifetime of the franchise. That means that all of the profits are not yours but must be shared with the franchise seller, and some people are just not interested in doing that. Ultimately, sharing the wealth with the parent company is part and parcel of the retail franchise business.

In the beginning, there will be a great deal of work involved in making the franchise profitable. The parent company may make suggestions and may even require an accounting to show that you are working on that aspect of the business. This is another way in which you are in charge, but you aren’t since you have to answer to someone else about your business activities. However, on the other end of the scope, you are well-informed and educated, more than you would be if had a stand-alone business in the middle of town.

In spite of the advantages, there are disadvantages to owning a franchise, as already mentioned, and you must be willing to work with the team of people who have already perfected the methods they teach you. If you’re not willing to follow the advice of those who are already successful, you will not be successful and will be wasting money to buy a franchise.

If you’re thinking about buying a franchise, remember that this type of business is not for everyone and requires a great deal of hard work and long hours in the beginning. You are also not in control of everything you do and must follow the rules, directions, and guideline of the franchise seller. Of course, the advantages outweigh the disadvantages since you are buying into a company that is already well-established and has a following. It isn’t the same as buying a lot with a building and opening a restaurant that is unfamiliar to everyone. Remember, people are funny in that way; they do not customarily like to try a new business of any kind unless someone else has taken the step first and can give a review on the experience.

Weigh the advantages and disadvantages carefully before you choose to buy a franchise. Once you make the decision and sign the paperwork, there is no turning back. Take the time to investigate both types of businesses and see what would suit you best.