When you get ready to purchase a new car, you probably will not just pick out the first one you come to, make the financial arrangements, and drive it off the lot. Most likely, you are going to tell the salesman that you want this particular color, leather upholstery instead of cloth, or vice versa, and whether or not you want other options that are available.
You may also be able to do the same thing if you are having a home built. Some builders will allow you to make changes in existing home plans. For example, you might tell the homebuilder, "I'll give up this closet if you'll make the room bigger," or, "I want a larger front porch." Because you are able to make these choices, the car dealership and/or the homebuilder are considered product model franchises. (Other businesses operate as product model franchises also; these are just two examples).
However, other businesses don't operate that way. Instead, they decide the best way to operate so that they can be sure that the business makes money. Once they find a method that works successfully to achieve that particular goal-making money - they adopt it and adhere to it, making changes only when or if it is absolutely necessary. They are called business model franchises.
Both product model franchises and business model franchises have advantages. Product model franchises offer the customer or consumer more freedom of choice, and that one thing is what draws him to such a business. Also, product model franchises may be more willing to make changes or try new techniques, particularly if they see that it will draw more customers.
With a business model franchise, however, the customer or consumer is already familiar with or knows with a fair amount of certainty what is available through that business. And that sense of sameness and continuity is what he is looking for.
There are some disadvantages to both types of franchises. The choices available through a product model franchise may come at an increased price or extended delivery, service, or completion time. The consumer may not have the luxury of spending more or waiting longer.
A business model franchise, on the other hand, may offer the goods or services needed when the consumer needs them, at a price that he can afford, but his choices are so limited that little or no satisfaction is gained from the purchase. He may decide that having a choice is worth extra expense or additional wait time.
Further, a business model franchise owner may actually find himself "left behind", particularly if the model is so rigid as to leave little or no room for improvement. It is true that some business model franchises can remain profitable without making significant changes; however, others may not be able to compete, and therefore may be forced to cease operation.
Contact a FranFinders franchise consultant today.
Wednesday, June 29, 2011
Wednesday, June 22, 2011
9 Benefits of Franchises over Independent Businesses
The following benefits provide a good rationale for going into business by purchasing a franchise business. These must be balanced by the costs or disadvantages.
Lower Risks. Most business experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics on this vary depending on the definition of failure. Whatever statistics are used, they consistently suggest that a franchise is more likely to succeed than are independent businesses.
Established product or service. A franchisor offers a product or service that has sold successfully. An independent business is based on both an untried idea and operation. Three factors will help you predict the potential success of a franchise. The first is the number of franchises that are in operation. The second predictor is how long the franchisor and its franchisees have been in operation. A third factor is the number of franchises that have failed, including those bought back by the franchisor.
Experience of franchisor. The experience of the franchisor's management team increases the potential for success. This experience is often conveyed through formal instruction and on-the-job training.
Group purchasing power. It is often possible to obtain lower-cost goods and supplies through the franchisor. Lower costs result from the group purchasing power of all franchises. To protect this benefit, most franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
Name recognition. Established franchisors can offer national or regional name recognition. This may not be true with a new franchisor. However, a benefit of starting with a new franchisor is the potential to grow as its business and name recognition grow.
Efficiency in operation. Franchisors discover operating and management efficiencies that benefit new franchisees. Operational standards set in place by the franchisor also control quality and uniformity among franchisees.
Management assistance. A franchisor provides management assistance to a franchisee. This includes accounting procedures, personnel management, facility management, etc. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee overcome this lack of experience.
Business plan. Most franchisors help franchisees develop a business plan. Many elements of the plan are standard operating procedures established by the franchisor. Other parts of the plan are customized to the needs of the franchisee.
Start-up assistance. The most difficult aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its franchisees with start-up. This experience will help reduce mistakes that are costly in both money and time.
Marketing assistance. A franchisor typically offers several marketing advantages. The franchisor can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees. In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area. This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their gross income to a co-operative marketing fund.
Assistance in financing. It is possible to receive assistance in financing a new franchise through the franchisor. A franchisor will often make arrangements with a lending institution to lend money to a franchisee. Lending institutions find that such arrangements can be quite profitable and relatively safe because of the high success rate of franchise operations. The franchisee must still accept personal responsibility for the loan, but the franchisor's involvement usually increases the likelihood that a loan will be approved.
Proven system of operation. An attractive feature of most franchises is that they have a proven system of operation. This system has been developed and refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on the entire experience of all these operations.
When conducting your franchise due diligence, keep in mind the free services of FranFinders expert franchise consultants.
Lower Risks. Most business experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics on this vary depending on the definition of failure. Whatever statistics are used, they consistently suggest that a franchise is more likely to succeed than are independent businesses.
Established product or service. A franchisor offers a product or service that has sold successfully. An independent business is based on both an untried idea and operation. Three factors will help you predict the potential success of a franchise. The first is the number of franchises that are in operation. The second predictor is how long the franchisor and its franchisees have been in operation. A third factor is the number of franchises that have failed, including those bought back by the franchisor.
Experience of franchisor. The experience of the franchisor's management team increases the potential for success. This experience is often conveyed through formal instruction and on-the-job training.
Group purchasing power. It is often possible to obtain lower-cost goods and supplies through the franchisor. Lower costs result from the group purchasing power of all franchises. To protect this benefit, most franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
Name recognition. Established franchisors can offer national or regional name recognition. This may not be true with a new franchisor. However, a benefit of starting with a new franchisor is the potential to grow as its business and name recognition grow.
Efficiency in operation. Franchisors discover operating and management efficiencies that benefit new franchisees. Operational standards set in place by the franchisor also control quality and uniformity among franchisees.
Management assistance. A franchisor provides management assistance to a franchisee. This includes accounting procedures, personnel management, facility management, etc. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee overcome this lack of experience.
Business plan. Most franchisors help franchisees develop a business plan. Many elements of the plan are standard operating procedures established by the franchisor. Other parts of the plan are customized to the needs of the franchisee.
Start-up assistance. The most difficult aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its franchisees with start-up. This experience will help reduce mistakes that are costly in both money and time.
Marketing assistance. A franchisor typically offers several marketing advantages. The franchisor can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees. In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area. This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their gross income to a co-operative marketing fund.
Assistance in financing. It is possible to receive assistance in financing a new franchise through the franchisor. A franchisor will often make arrangements with a lending institution to lend money to a franchisee. Lending institutions find that such arrangements can be quite profitable and relatively safe because of the high success rate of franchise operations. The franchisee must still accept personal responsibility for the loan, but the franchisor's involvement usually increases the likelihood that a loan will be approved.
Proven system of operation. An attractive feature of most franchises is that they have a proven system of operation. This system has been developed and refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on the entire experience of all these operations.
When conducting your franchise due diligence, keep in mind the free services of FranFinders expert franchise consultants.
Wednesday, June 15, 2011
Whats the Future of Franchising?
The growth of the franchise business is inevitable, because of the inescapable logic of the underlying concept. Franchising clearly offers aspiring, new business owners the best possible chance of succeeding with the least risk. Within a decade or less, franchising will comprise over 50% of the retail economy, will employ millions of people, and will enable hundreds of thousands to realize the American dream of successful business ownership.
As the U.S. and world economies grow with the ever increasing populations, and the move toward free market economies, new franchise concepts will come on the scene and the solid, well managed existing franchise companies will continue to grow.
There is a move toward better protection of franchisee rights and over time this will push more franchisers towards structuring their relationships with their franchisees in a totally win/win manner. Most franchise agreements in today's market are written strongly in the favor of the franchiser. Franchising is evolving; it's getting better conceptually and in reality. There are greater opportunities for wealth creation among both franchisees and franchisers today then ever before.
The future of franchising is as bright as the sun and if you want to take the big step and go into business for yourself or if you have an existing business that you want to optimize, then you should look closely at franchising as the vehicle to take you to where you want to be in the 21st century. By utilizing the free services of a FranFinders expert franchise consultant, you will be on your way to the future.
As the U.S. and world economies grow with the ever increasing populations, and the move toward free market economies, new franchise concepts will come on the scene and the solid, well managed existing franchise companies will continue to grow.
There is a move toward better protection of franchisee rights and over time this will push more franchisers towards structuring their relationships with their franchisees in a totally win/win manner. Most franchise agreements in today's market are written strongly in the favor of the franchiser. Franchising is evolving; it's getting better conceptually and in reality. There are greater opportunities for wealth creation among both franchisees and franchisers today then ever before.
The future of franchising is as bright as the sun and if you want to take the big step and go into business for yourself or if you have an existing business that you want to optimize, then you should look closely at franchising as the vehicle to take you to where you want to be in the 21st century. By utilizing the free services of a FranFinders expert franchise consultant, you will be on your way to the future.
Wednesday, June 8, 2011
A Short History of Franchising
The word Franchise comes from old French meaning privilege or freedom. In the middle ages a franchise was a privilege or a right. In those days, the local sovereign or lord would grant the right to hold markets or fairs, to operate the local ferry or to hunt on his land. This concept extended to the Kings granting a franchise for all manner of commercial activities such as building roads and the brewing of ale. In essence the king was giving someone the right to a monopoly for a certain type of commercial activity. Over time the regulations governing franchises became a part of European Common Law.
Over the centuries the franchising concept has evolved as the economies of the nations of the world have evolved. In the 1840’s in Germany certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale. This was the beginning of the concept of franchising as we know it today.
The first American franchise business is reputed to be the Singer Sewing Center, developed by Isaac Singer in 1858. After Singer invented the sewing machine, he encountered two significant obstacles in bringing it to market. Consumers had to be taught how to use the new invention before they would buy, and Singer lacked the capital to manufacture his machine on a mass basis. Once Singer seized upon the idea of selling the rights to local business people to sell his machine and train users, his enterprise expanded rapidly. Fees for the license rights helped fund his manufacturing, and because each franchisee was self-financed, Singer was spared the expense of hiring each center’s manager. Singer had written franchise contracts, which were the forerunners of modern franchise agreements.
In the 1880’s cities began to grant monopoly franchises to streetcar companies and utilities for water, sewerage, gas and later electricity.
Around the turn of the century, the oil refinery companies and the automobile manufacturers began to grant the right to sell their products. At this stage in the evolution of franchising it was essentially just the granting of the right to distribute and sell a manufacturer’s products.
Business format franchising, which is the dominant mode of franchising today came onto the economic scene after World War II with the return of the millions of US servicemen and women and the subsequent baby boom. The baby boom is still driving the economy and will continue to do so into the next century. There was an overwhelming need for all types of products and services, and franchising was the ideal business model for the rapid expansion of the hotel/motel and fast food industries.
During the explosion of the 60’s and 70’s there were many abuses in franchising. There were a number of totally fraudulent franchise companies that literally took peoples money and ran, and there were a number of companies that were undercapitalized and poorly managed which went bankrupt, leaving a trail of failed franchisees who had lost everything.
It became clear that the franchise industry had to change in order to remain a viable business concept. On the industry side, The International Franchise Association was created with the specific intent of uplifting the entire industry. The IFA holds training in all aspects of franchising which greatly enhances the professionalism of the industry. Members of the IFA are required to adhere to the IFA’s Code of Ethics which set a high standard. The IFA works closely with the U.S. Congress and the Federal Trade Commission on improving how the industry relates to the franchisees.
On the government regulatory side, the Federal Trade Commission, in 1978, required that all franchisers submit to all potential franchisees a disclosure document called the Uniform Offering Circular or UFOC, before receiving monies. The UFOC provides very detailed information on the franchise company, such as its history, information about the officers, litigation history, audited financial statements, the franchise agreement, which is the contract between the franchiser and franchisee and a current list of franchises with owners names and telephone numbers. The intent of the UFOC is that it provides enough information so that the prospective franchisee can make an informed decision. The FTC doesn’t actually review the UFOC unless there is a complaint and it decides to conduct an investigation.
Recently, in 2007 the FTC updated and modernized the Franchise Law. Most importantly is the replacement of the UFOC with the Federal Disclosure Document or FDD.
Now, franchise consultants assist you with finding your franchise.
Over the centuries the franchising concept has evolved as the economies of the nations of the world have evolved. In the 1840’s in Germany certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale. This was the beginning of the concept of franchising as we know it today.
The first American franchise business is reputed to be the Singer Sewing Center, developed by Isaac Singer in 1858. After Singer invented the sewing machine, he encountered two significant obstacles in bringing it to market. Consumers had to be taught how to use the new invention before they would buy, and Singer lacked the capital to manufacture his machine on a mass basis. Once Singer seized upon the idea of selling the rights to local business people to sell his machine and train users, his enterprise expanded rapidly. Fees for the license rights helped fund his manufacturing, and because each franchisee was self-financed, Singer was spared the expense of hiring each center’s manager. Singer had written franchise contracts, which were the forerunners of modern franchise agreements.
In the 1880’s cities began to grant monopoly franchises to streetcar companies and utilities for water, sewerage, gas and later electricity.
Around the turn of the century, the oil refinery companies and the automobile manufacturers began to grant the right to sell their products. At this stage in the evolution of franchising it was essentially just the granting of the right to distribute and sell a manufacturer’s products.
Business format franchising, which is the dominant mode of franchising today came onto the economic scene after World War II with the return of the millions of US servicemen and women and the subsequent baby boom. The baby boom is still driving the economy and will continue to do so into the next century. There was an overwhelming need for all types of products and services, and franchising was the ideal business model for the rapid expansion of the hotel/motel and fast food industries.
During the explosion of the 60’s and 70’s there were many abuses in franchising. There were a number of totally fraudulent franchise companies that literally took peoples money and ran, and there were a number of companies that were undercapitalized and poorly managed which went bankrupt, leaving a trail of failed franchisees who had lost everything.
It became clear that the franchise industry had to change in order to remain a viable business concept. On the industry side, The International Franchise Association was created with the specific intent of uplifting the entire industry. The IFA holds training in all aspects of franchising which greatly enhances the professionalism of the industry. Members of the IFA are required to adhere to the IFA’s Code of Ethics which set a high standard. The IFA works closely with the U.S. Congress and the Federal Trade Commission on improving how the industry relates to the franchisees.
On the government regulatory side, the Federal Trade Commission, in 1978, required that all franchisers submit to all potential franchisees a disclosure document called the Uniform Offering Circular or UFOC, before receiving monies. The UFOC provides very detailed information on the franchise company, such as its history, information about the officers, litigation history, audited financial statements, the franchise agreement, which is the contract between the franchiser and franchisee and a current list of franchises with owners names and telephone numbers. The intent of the UFOC is that it provides enough information so that the prospective franchisee can make an informed decision. The FTC doesn’t actually review the UFOC unless there is a complaint and it decides to conduct an investigation.
Recently, in 2007 the FTC updated and modernized the Franchise Law. Most importantly is the replacement of the UFOC with the Federal Disclosure Document or FDD.
Now, franchise consultants assist you with finding your franchise.
Wednesday, June 1, 2011
11 Questions to ask a Franchise Owner
When you begin your franchise due diligence process of determining whether a particular franchise is right for you, you will need to contact current and past franchise business owners. This part of the process is referred as validation. During validation you speak with the owners and get their perspective.
Following are a list of questions to ask current franchise owners:
How long have you been in business?
Would you make the same decision again?
How is corporate support?
Are your earnings meeting your expectations?
What profit margin can I expect? - year 1, year 2, year 3
How long did it take you to break even?
Any unforeseen expenses?
What is your biggest challenge in the business?
How long do you plan to stay in this business?
What do you wish you would have known when you started?
What is the best thing about this company?
As you can see, these are the basic questions that will help you see beyond the surface of any franchise. With the help of a franchise consultant you will be able to find the answers, helping you make the right decision, thus making validation an extremely important step of the franchise due diligence process.
Following are a list of questions to ask current franchise owners:
How long have you been in business?
Would you make the same decision again?
How is corporate support?
Are your earnings meeting your expectations?
What profit margin can I expect? - year 1, year 2, year 3
How long did it take you to break even?
Any unforeseen expenses?
What is your biggest challenge in the business?
How long do you plan to stay in this business?
What do you wish you would have known when you started?
What is the best thing about this company?
As you can see, these are the basic questions that will help you see beyond the surface of any franchise. With the help of a franchise consultant you will be able to find the answers, helping you make the right decision, thus making validation an extremely important step of the franchise due diligence process.
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