Investment risk is greatly reduced by buying a franchise and associating with an established brand. For a fee, investors are introduced to a system developed by a successful company that they can use to put up their own business outlet. Here are the three major components of franchise systems that investors should know about when choosing from profitable franchise opportunities.
The first component of franchise systems are costs. The largest fee that investors must pay is the non-refundable initial franchise fee, which includes the cost to rent, build, equip, and stock initial inventory for an outlet. The franchisee is also expected to cover the costs of obtaining operating licenses and insurance, while the franchisor may ask for a grand opening fee to promote the outlet as well. After the outlet opens, the franchisee must pay royalties based on a percentage of weekly or monthly gross income.
The next component of franchise systems are controls. Franchisors impose controls that ensure uniformity in the way franchisees conduct business. Sites are typically pre-approved by the company offering the franchise to increase the likelihood of attracting customers. The outlet must abide by a set of design standards and follow seasonal design changes to maintain a uniform look among all franchises.
Take note of the restrictions when it comes to the method of operation and the kinds of goods and services that can be sold by a franchise. The hours, prices, and bookkeeping procedures, may all be dictated by the franchisor. This restricts the ability of franchise outlets to add or remove items from the list of products they sell.
The last component of franchise systems is contract termination and renewal. A breach of contract, which includes failure to pay required fees or inability to abide by performance standards, can result in the termination of the franchise agreement. Another point that any investor has to remember is that the right to renew is not guaranteed.
Setting up a franchise outlet is less risky compared to establishing a start-up business. By being familiar with these components, investors can take advantage of the franchisor’s tried and tested recipe for success. For more information about profitable franchise opportunities, head on over to business.ftc.gov/documents/inv05-buying-franchise-consumer-guide.
Taking Advantage of Profitable Franchise Opportunities