If you already have a successful business, you should congratulate yourself as it is certainly not an easy task. It takes a lot of hard work and determination to ensure that everything runs smoothly. You must create effective marketing campaigns that attract new customers and encourage sales, prepare realistic budgets, hire and train reliable employees, and make detailed accounting and financial reports to monitor business performance.
Once you’ve mastered these tasks, you can get to the point where you’d like to expand your current business. You can always hire additional employees, market more aggressively, or expand your current product line. However, there is another very viable alternative that you should definitely consider: franchising your business! I am going to discuss some of the important elements of franchising to help you decide if this is the right path for you.
Types of franchises
There are basically two different types of franchises. You can purchase the rights to a successful existing business location. Another option is to buy a master franchise. This allows you to develop business in multiple locations. You can then choose to sub-franchise them within a specific geographic area. You must decide how much time, money, and energy you want to devote to the expansion process. This will help you determine which type of franchise is best for you.
What the franchisee will receive
If you are planning to buy a franchise, you are known as the franchisee and the owner of the established successful business is called the franchisor. The joint venture or contractual relationship that is formed during the franchise process includes a copy for sale and lease of the existing business. This document contains all the key elements that contributed to the success of the original business. As a franchisee, you will need to pay close attention to these elements in order to establish successful businesses in one or more new locations.
The copy kit you will receive should contain a lot of valuable information:
o Package of improvements to leased premises
o Sublease of a location
o Starting Inventory Pack
o List of changes to the exterior of a building that will be instantly recognizable
o List of fixtures and furnishings including relevant trademarks and logos
o Initial training package
o Ongoing support system including marketing, accounting and general business management experience
What the franchisor will receive
In exchange for providing the copy kit and support for franchising a turnkey business, the franchisor will receive a franchise fee. This varies with each particular franchise, so you should discuss the amount beforehand. You will also have to pay a royalty to the franchisor so that this person can receive a percentage of the daily profits of the new business. Depending on the type of business you’re buying and the degree of involvement required by the franchisor, you can expect to pay anywhere from 2 percent of gross sales revenue to 50 percent of net profit.
Some franchisors may also require you to pay 3 to 5 percent of your income to help with national or international marketing and promotional efforts. This helps cover the cost of expenses such as signage, logos, and products needed to establish a corporate identity for the business. Some franchisors will also charge you a service fee to provide you with the necessary stock and inventory for your new business.
Although you will be the owner of the business when you become a franchisee, the franchise agreement ensures that you follow a standard set of procedures. If you are a very creative person who wants to keep full control over your business, you should consider this. You will have to sacrifice some creative freedom for the opportunity to buy an already successful business. Now that you know more about how the franchise process works, we suggest you read our article on how to find a franchise to buy.