Starting Your Own Business: Franchising

Franchising offers you the opportunity to view the track record of a business, attain the blueprint for success (provided by the franchise) and have the resources of the franchise as a support team for logistics, training, finance ect. Franchising offers you the opportunity to lessen your risk by seeing actual performance data for other businesses like yours. 

There are a huge number of businesses available from retail to internet businesses in all areas. Here is a link to just one resource where you can search for types and details of local franchises (FranchiseOpportunities.com). 

What are the pitfalls of franchising? You must be very diligent in your research to understand who is already in your space. Just because the franchise has been an overall successful, due to demographics or intense competition and price pressure your business might not succeed. 

Start up costs for retail business can be very high. In California your retail build out is to be specified by the franchise and can exceed $300,000 or more. Hiring a reliable contractor, gaining the proper city or shopping center approvals can be a long process. 

Start up costs for marketing, supplies, inventory and building your base of clients takes time. Allow 2 years to be profitable typically in these models. Finally hiring a staff requires patience and a strong awareness of local and state employment requirements. 

Most franchises will require a minimum of 6% royalties and potentially a 2-3% marketing fee every month to promote the brand. This does not replace the need to do your own specific marketing. 

Franchising can be the right choice for you but keep a these points in mind:

  • Avoid labor intensive businesses. Costs of liability and other insurance can be high. 
  • Watch your overhead. You may love a retail space and assume everyone else will but your lease will be your second highest cost outside of payroll. It can mean the difference between making money and losing money. 
  • Avoid selling products that can be searched and purchased on the key online stores including, Amazon, Walmart.com, Target.com and others. They have huge scale and buying power and you will not be able to compete. 
  • Hire the right manager and give them the flexibility to put together their team. Let them manage but have weekly check in meetings to provide support. 
  • Avoid partnerships especially in businesses with smaller margins. 

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