Starting a Business- The Franchise Option
Article Written By: Katie Farrell, Staff Writer
An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.
One of the biggest mistakes you can make is to hurry into business, so it's important to understand your reasons for going into business, and to determine if owning a business is right for you. If you are concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for you.
What is Franchising?
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor, or that meet the franchisor's quality standards.
In the simplest form, a franchisor owns the right to the name or trademark and sells that right to a franchisee. This is known as "product/trade name franchising." The more complex form, "business format franchising," involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.
What to Consider?
Before investing in a particular franchise system, carefully consider how much money you have to invest, what type of franchise would be best for you, your abilities, and your goals. Selecting a Franchise like any other investment, is a risk. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive.
- Demand - Is there a demand for the franchisor's products or services in your community? Is the demand seasonal? For example, lawn and garden care or swimming pool maintenance may be profitable only in the spring or summer. Is there likely to be a continuing demand for the products or services in the future? Is the demand likely to be temporary, such as selling a fad food item? Does the product or service generate repeat business?
- Competition- What is the level of competition, nationally and in your community? How many franchised and company-owned outlets does the franchisor have in your area? How many competing companies sell the same or similar products or services? Are these competing companies well established, with wide name recognition in your community? Do they offer the same goods and services at the same or lower price?
- Your Ability to Operate the Business- Sometimes, franchise systems fail. Will you be able to operate your outlet even if the franchisor goes out of business? Will you need the franchisor's ongoing training, advertising, or other assistance to succeed? Will you have access to the same or other suppliers? Could you conduct the business alone if you must lay off personnel to cut costs?
Contact an Attorney
Franchising can be a very complex and intricate form of conducting business. As a result, getting informed and contacting an experienced attorney can be vital to your success. An experienced attorney can help guide you through the process and ensure that your legal rights are protected and help make your decision making as easy as possible.