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Suggest You - Is Franchising for Me
A little over seven months ago my life started changing in a really radical way. In the beginning I thought it had nothing to do with my business and that I’d be able to keep my personal problems out of the business. Soon I realized that because I’d started my business with the intent of integrating my life and my work, that some of my work was going to change for a while.As my marriage waned and ended, I bought and moved into a new home. The transition has taken more energy than I’d imagined. There were days when I just “didn’t have it in me” to do more than the very basics. However, I had to keep my business running so income would continue during the transition.While I’m hoping you don’t have to go through a major life change like mine, the odds are good that at some point in your entrepreneurial career the Universe is going to throw you a curve ball. Whether it’s a messy marriage, an ailing relative, or a new baby, you’re life is going to change. Here are six tips to help you ensure that your business doesn’t have to suffer as you adapt.1. Be prepared. I know, it’s a clich?, but during the past 7 months the fact that I had spent so much time preparing my business to essentially run without me was a lifesaver! Every day ask yourself what would happen if you weren’t at the helm of your business. Keep track of tasks that you can outsource and things you can do to prepare others to help you out. Do one thing every day to ensure you’re prepared.2. Work on your business, not in it. I’m not sure I’d still be in business if I were the only person working in it. During the months that I was preparing to move, moving and adjusting to my new life, I was simply going through the motions in many areas of my life. When life throws you curveballs, you do the best you can to adapt. But I am so thankful that my mentors and coaches helped me get out of the trenches years ago. When I needed to b
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction o
1) In a competitive society or in a capitalistic country like ours, advertisements are a necessity. Factories mass-produce goods, shops and firm sell them. The advertisement of the goods is meant to attract a wide variety of customers to buy them. The production of goods without quick sale is to no purpose.2) We have different kind of advertisement to promote sales. Advertisement gives information about new products, about health and safety is called informative advertisement. Informative advertisement informs consumers about the range of goods and services available to them.3) The kind of advertisement that persuades peoples to buy thing is called persuasive advertisement. Persuasive advertisement is directed to consumers who do not need to buy products very much. However, through effective advertisement they are brought round to buy them. Then there is deceptive advertisement. Deceptive advertising makes peoples believe products or goods to better then they are. When customers buy the products, then they realize that the deceptive played upon them, which makes the products unpopular. When persuasive advertising becomes deceptive, the results are often negative.4) We look at the innumerable posters, notices, small boards and hoardings, huge boards on the outside of buildings and banners for advertisement at road crossings and street corners or in busy public places. At night the advertisement are well lit, and they seems to add glamour to the areas around. However, the large hoardings or billboards with pictures and slogans only block the view of natural scenery and restrict openness. They interfere with driving and excite passions unnecessarily. The race for better presentation of goods and services on the roadsides is at the coast of the citizens’ peace of mind and social safety.5) In any case, advertisement is something of a necessity in th
Although franchises tend to have higher success rates, they also have risks , and can fail for any number of reasons like any other business. You must investigate Joe’s Restaurant Franchise just as thoroughly as Joe’s Local Diner before buying it. There are a number of great resources in addition to this article to help you determine if a franchise is the right way for you to go. The U.S. Small Business Administration (SBA) has some excellent resources (www.sba.gov and www.sba.gov/opc/pubs/fran.pdf), as do several other services like business brokerage websites. Enter “Is Franchising For Me” in any Internet search engine, and you’ll retrieve links to a large number of resources.
What is a Franchise?
The SBA resource I mentioned above offers the following definition for a franchise: 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 seeking the right 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 sells goods or services that meet the franchisor's quality standards. As a business model, franchising is essentially a finance vehicle for expansion of the concept. You, the franchisee, finance the start up of the individual franchised unit and pay licensing and royalty fees to the franchisor. This is as opposed to the franchise company bearing the costs of opening its own units (many franchises do have company-owned stores along with franchised stores). The franchise agreement is a contract that governs the manner in which you will do business.
For the fees you pay, the franchisor licenses to you the use of the name of the business and provides other support. Typically there is a business operating system in place, contracts for products or services sold, equipment packages, store design packages, etc. Many franchisors will also arrange for financing relationships. Some franchisors supply the product directly and make money on the sale of that product to you. Such an arrangement usually reduces or eliminates the royalties you would otherwise pay. Typically, you will pay an upfront license fee and then pay ongoing royalties—usually as a percentage of your sales—plus contribute to regional and/or national advertising funds. The franchisor will hopefully provide business expertise as well—operations management, marketing, selecting locations—and should provide training, typically at their corporate headquarters for one to two weeks, plus training and support as you plan and get your franchise unit ready to open.
As a franchisee you own the business, but you are subject to the guidelines of the franchise agreement—products, store d?cor, uniforms, where product is purchased, certain advertising guidelines, etc. Franchising may be a good option if you prefer a business with existing brand recognition and defined processes you can follow, instead of creating the business from scratch on your own. The service and support offered by a franchisor varies from chain to chain—and may not always live up to your expectations. But the essence of the value of a franchise is the following:
- Existing brand value (unless brand new to the market)
- Existing operating system
- Existing product/service selection
- Supplier relationships (sometimes with favorable terms)
- Training
- Proven locations up and running based on the concept (unless brand new to the market)
- Cooperative advertising and cross-traffic with other franchisees
These things, like all things of value, have to be earned. In the case of a franchise, in addition to all the work you will have to do to be successful in any business, you have to pay the franchisor for the right to use their systems and trademarks. As noted above, this payment typically takes the form of an upfront “franchise license fee” and then a payment of ongoing royalties, plus a contribution to local and/or regional and national advertising funds. Upfront fees can be fairly nominal, like $5,000, or can be in the tens of thousands of dollars. Royalties (charged as a % of your revenue) vary by chain, but are often in the 5% - 8% range. Advertising contributions are also typically charged as a percentage of sales and can vary substantially, but typically range from 1% to 5%, with 3% - 4% being the most common in my experience. In addition to contributions to regional or national advertising funds, you will have to spend additional local marketing dollars to be a success—don’t assume you can rely on your percentage contributions to provide adequate marketing resources to make you a success.
What’s the Right Franchise?
Only you can answer that question, but some things to bear in mind are:
- What are your interests?
- How much capital do you have?
- Do you want to develop multiple units?
- What days or hours do you want to work?
- How easy is it to re-sell your franchise and what are the restrictions or costs from the franchisor?
The financial value a franchise brings to you is an important question to ask yourself. For example, if you are giving up 10% of your revenue in the form of 6% royalties and a 4% advertising co-op fee (which, in theory, comes back to your benefit in the form of marketing resources and advertising), you need to objectively assess what you get back for that 10%. 10% right off the top is a significant amount of money. Will you have a higher probability of success? Will you make more money on the bottom line in spite of the 10% expense? It may be simply that a franchise makes it possible for you to be in business for yourself because of your comfort level with an existing concept, versus trying to create your own. This is why many people go with a franchise, and it’s a good reason, but be sure you understand the financial costs and tradeoffs.
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction of
I heard this comment at a National Speaker's Association meeting last month: "Being your own boss is the hardest way to make easy money." Boy, isn't that the truth!So many people I speak with dream of becoming self employed and starting their own small business. Don't get me wrong: being self employed is the best lifestyle I know. It has a huge range of rewards, from flexibility to independence to self-responsibility. I'm completely in love with being self employed and wouldn't exchange it for a corporate job for a million dollars! (Okay, truthfully, if you want to offer me a million dollars a year in salary, I'm willing to entertain a discussion.)But it is hard work, plain and simple. After carefully studying and working with people who start their own businesses, my best estimate is that it takes at least a year to make a serious profit, and often it's more like two years. I have yet to see a "quick fix" for small business marketing that will land a lot of cash in your pocket in 30 days. If your business structure and administrative process are not firmly in place, you'll crash and burn eventually. If your business strategy and plan are not fine-tuned, you'll spend an extraordinary amount of time running in circles trying to find the right customer and the right product or service to sell them.So why do people look for (and purchase) products and services that promise a quick fix to their ailing small business? In the question lays the answer: they want a quick fix to the pain. Don't we all?Running your own small business is a marathon, not a sprint. Stop trying to sprint your way to your first million without a firm foundation under you. Remember, marathoners train all year long for just one marathon; they don't wait until the month before to begin preparing.Things to consider:1. Make sure you have the personality to be self employed.2. Make sure you
For the fees you pay, the franchisor licenses to you the use of the name of the business and provides other support. Typically there is a business operating system in place, contracts for products or services sold, equipment packages, store design packages, etc. Many franchisors will also arrange for financing relationships. Some franchisors supply the product directly and make money on the sale of that product to you. Such an arrangement usually reduces or eliminates the royalties you would otherwise pay. Typically, you will pay an upfront license fee and then pay ongoing royalties—usually as a percentage of your sales—plus contribute to regional and/or national advertising funds. The franchisor will hopefully provide business expertise as well—operations management, marketing, selecting locations—and should provide training, typically at their corporate headquarters for one to two weeks, plus training and support as you plan and get your franchise unit ready to open.
As a franchisee you own the business, but you are subject to the guidelines of the franchise agreement—products, store d?cor, uniforms, where product is purchased, certain advertising guidelines, etc. Franchising may be a good option if you prefer a business with existing brand recognition and defined processes you can follow, instead of creating the business from scratch on your own. The service and support offered by a franchisor varies from chain to chain—and may not always live up to your expectations. But the essence of the value of a franchise is the following:
- Existing brand value (unless brand new to the market)
- Existing operating system
- Existing product/service selection
- Supplier relationships (sometimes with favorable terms)
- Training
- Proven locations up and running based on the concept (unless brand new to the market)
- Cooperative advertising and cross-traffic with other franchisees
These things, like all things of value, have to be earned. In the case of a franchise, in addition to all the work you will have to do to be successful in any business, you have to pay the franchisor for the right to use their systems and trademarks. As noted above, this payment typically takes the form of an upfront “franchise license fee” and then a payment of ongoing royalties, plus a contribution to local and/or regional and national advertising funds. Upfront fees can be fairly nominal, like $5,000, or can be in the tens of thousands of dollars. Royalties (charged as a % of your revenue) vary by chain, but are often in the 5% - 8% range. Advertising contributions are also typically charged as a percentage of sales and can vary substantially, but typically range from 1% to 5%, with 3% - 4% being the most common in my experience. In addition to contributions to regional or national advertising funds, you will have to spend additional local marketing dollars to be a success—don’t assume you can rely on your percentage contributions to provide adequate marketing resources to make you a success.
What’s the Right Franchise?
Only you can answer that question, but some things to bear in mind are:
- What are your interests?
- How much capital do you have?
- Do you want to develop multiple units?
- What days or hours do you want to work?
- How easy is it to re-sell your franchise and what are the restrictions or costs from the franchisor?
The financial value a franchise brings to you is an important question to ask yourself. For example, if you are giving up 10% of your revenue in the form of 6% royalties and a 4% advertising co-op fee (which, in theory, comes back to your benefit in the form of marketing resources and advertising), you need to objectively assess what you get back for that 10%. 10% right off the top is a significant amount of money. Will you have a higher probability of success? Will you make more money on the bottom line in spite of the 10% expense? It may be simply that a franchise makes it possible for you to be in business for yourself because of your comfort level with an existing concept, versus trying to create your own. This is why many people go with a franchise, and it’s a good reason, but be sure you understand the financial costs and tradeoffs.
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction o As a franchisee you own the business, but you are subject to the guidelines of the franchise agreement—products, store d?cor, uniforms, where product is purchased, certain advertising guidelines, etc. Franchising may be a good option if you prefer a business with existing brand recognition and defined processes you can follow, instead of creating the business from scratch on your own. The service and support offered by a franchisor varies from chain to chain—and may not always live up to your expectations. But the essence of the value of a franchise is the following:
As a new mother, you are not told how difficult it is going to be for the first six weeks. Everyone tells you how wonderful it will be, that you won't get much sleep in the beginning, and that it will be very difficult, but no one says to you that the first six weeks will be horrible, and then all of a sudden it will get easier.You need items that you have never even used before, and if you know anybody who has ever raised, carried, or even seen a child before, they have an opinion for you about how you should raise yours. You read an insane amount of articles before the birth about other people's birth experiences, your own fears multiply incrementally, and you start to wonder what in the world you were thinking, wanting to have a baby.When you start focusing on what you need for the baby, you go to a number of stores, read more articles, and test out merchandise. It's interesting that people tell you to test out merchandise before you have the baby. You do not know what it's going to be like to have a baby, you are relying on salespeople and other articles to find out what you might "need" and yet, you are testing items.The people who help you in the stores are often individuals who have never had children, either, so that is not especially helpful. They may carry the merchandise in these stores, but they are not always the best price, and they are not always the only items that are out there, just the ones that this particular well-known chain store chooses to carry.So where else can you go? You are always sure to find an endless amount of stores on the internet, but calling them to find out information is not always feasible. Many of them do not have 800 numbers, or a toll-free solution to reach them.Out of all the items you need for a baby, probably the most tested and yet most controversial item is a stroller. There are several manufacturers, every manufacturer produces at
These things, like all things of value, have to be earned. In the case of a franchise, in addition to all the work you will have to do to be successful in any business, you have to pay the franchisor for the right to use their systems and trademarks. As noted above, this payment typically takes the form of an upfront “franchise license fee” and then a payment of ongoing royalties, plus a contribution to local and/or regional and national advertising funds. Upfront fees can be fairly nominal, like $5,000, or can be in the tens of thousands of dollars. Royalties (charged as a % of your revenue) vary by chain, but are often in the 5% - 8% range. Advertising contributions are also typically charged as a percentage of sales and can vary substantially, but typically range from 1% to 5%, with 3% - 4% being the most common in my experience. In addition to contributions to regional or national advertising funds, you will have to spend additional local marketing dollars to be a success—don’t assume you can rely on your percentage contributions to provide adequate marketing resources to make you a success.
What’s the Right Franchise?
Only you can answer that question, but some things to bear in mind are:
- What are your interests?
- How much capital do you have?
- Do you want to develop multiple units?
- What days or hours do you want to work?
- How easy is it to re-sell your franchise and what are the restrictions or costs from the franchisor?
The financial value a franchise brings to you is an important question to ask yourself. For example, if you are giving up 10% of your revenue in the form of 6% royalties and a 4% advertising co-op fee (which, in theory, comes back to your benefit in the form of marketing resources and advertising), you need to objectively assess what you get back for that 10%. 10% right off the top is a significant amount of money. Will you have a higher probability of success? Will you make more money on the bottom line in spite of the 10% expense? It may be simply that a franchise makes it possible for you to be in business for yourself because of your comfort level with an existing concept, versus trying to create your own. This is why many people go with a franchise, and it’s a good reason, but be sure you understand the financial costs and tradeoffs.
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction o
You should never forget to celebrate Secretaries Day. This day commemorates all the hard work your office assistant and many others around the world have put in to keep you on time, organized and up-to-date on the job. Though this holiday’s name is a little out of date it is still important to remember and in some places looked forward by many assistants.There are several ways to celebrate Secretaries Day. Some places simply find that a small appreciative gift works best to show your employee that you are aware of their hard work and would like to honor him or her for it. Other places hold a small office party to give everyone a chance to relax a little bit in the office environment.If you want to hold an office party, put together some decorations, and get some good food to put in the break room. Don’t forget to get everyone involved in the celebration with some fun and silly office appropriate games. You can throw together an office relay or have an office scavenger hunt.As far as decorations are concerned you can easily find Secretaries Day themed items and paper goods to use. Pick up some additional party favors to give out to all of your employees. They can be mini glowsticks, light up drink glasses, fun paper weights or personalized pens and pencils for the office or home.Food is important for your party. Don’t wimp out and just pick up a box of stale donuts. Think about getting some great party food for the event. A giant sub sandwich makes an impression and will feed a lot of people. Pizza is a classic favorite and you can get several different kinds for your guests. Make sure you have plenty of trash bags on hand to clean up the party afterwards.Have fun!
What’s the Right Franchise?
Only you can answer that question, but some things to bear in mind are:
- What are your interests?
- How much capital do you have?
- Do you want to develop multiple units?
- What days or hours do you want to work?
- How easy is it to re-sell your franchise and what are the restrictions or costs from the franchisor?
The financial value a franchise brings to you is an important question to ask yourself. For example, if you are giving up 10% of your revenue in the form of 6% royalties and a 4% advertising co-op fee (which, in theory, comes back to your benefit in the form of marketing resources and advertising), you need to objectively assess what you get back for that 10%. 10% right off the top is a significant amount of money. Will you have a higher probability of success? Will you make more money on the bottom line in spite of the 10% expense? It may be simply that a franchise makes it possible for you to be in business for yourself because of your comfort level with an existing concept, versus trying to create your own. This is why many people go with a franchise, and it’s a good reason, but be sure you understand the financial costs and tradeoffs.
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction o
Never forget that an online business must still adopt sound business practices to succeed. Your goal should be to work at the business and not for the business.Work towards the goal of you not being necessary to the business for it to run successfully.Most online businesses are small and there is nothing wrong with that. Most don't have much money (I reckon there is something wrong with that) and invest huge amounts of time in establishing their business. After all, they have plenty of that and it's free isn't?No it is not!Your time has a value and if you need to work 12 hours each day to make the darn thing work the inevitable will happen. You will get sick of it and stop, or your partner will get sick of it and make you stop.On your way to building a successful business you must be sure of four things:
A record keeping system which tell you how you are travelling now.
A plan to show you how to reach your ultimate goal.
To know the amount of income required to meet your expenses, including your required profit and your loan repayments.
And the one thing that ensures survival - Money in must be more than money out.
Measure everything you can. It is only by knowing what you re achieving that you will know whether you are on track.
Not achieving the traffic you need? Then formulate the strategies to get more traffic. Everything you try doesn't seem to work?
No problem! Get some help from a consultant.
Every aspect of your business can either be outsourced or improved by a consultant.
Brand Value
Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction of success with a McDonalds franchise. It is only the conclusions of an industry observer and, admittedly, long term customer!). Franchisees that do not conform to the system are destroying their own investment by undermining consistency and therefore the brand. The difficult role of a franchisee is to be independent enough to be capable of owning your own business, but understanding at the same time that you are part of a larger system to which you need to contribute value (i.e., conformity and consistency) in order to be successful yourself.
Master Franchising
I’ll only touch briefly on master franchising, but you may want to follow up in detail on your own, as master franchising can be a very powerful and lucrative business opportunity for the right person. One company that specializes in master franchising is Franchise Growth Systems (FGS), and you can retrieve additional information on master franchising at their website, franchisegrowth.com. Many franchise systems have three overall levels to the organization:
- Corporate Franchisor—this is typically the entity that that developed the concept and from whom you are buying your franchise license.
- Master Franchisee —this is the entity that buys the right to develop franchisees in a given territory, like a state.
- Franchisee—this is the person who buys the franchisee license and operates the actual franchise unit.
There are two major aspects of the master franchisee you need to understand:
- Is it an opportunity that makes sense for you; and
- If you become a franchisee, what is the impact of the master franchisee on your success?
FGS calls master franchising “the best kept secret in franchising,” and it is a pretty unique type of opportunity. Basically, the master buys from the franchisor the rights to develop franchisees in a territory. For each franchise license the Master Franchisee sells, it typically receives one half of the upfront license fee—and that’s not even the good part! It then receives up to half of the ongoing royalties paid by all franchisees operating in its territory. If the master gets a number of units open in his or her territory, 3% (or whatever his or her share of royalties is) of the annual sales in the territory can grow very quickly.
The master typically has to open the first unit in the territory, which increases the capital required. The cost of Master agreements can vary widely, but typically sell for about $.03 to $.10 per head of population in a territory. A state with 3,000,000 people at $.05 per head would require a $150,000 investment. With the first unit to be opened by the master added in, significant capital can be required. If the cost to open a retail store in a retail franchise is $150,000, the total upfront cost to the master is $300,000 in this example. A good Master Franchisee has multiple qualities:
- A strong financial position to invest in the territory and a unit upfront, and wait for the chain to grow over 2 – 5 years.
- Sales/business development skills.
- People management skills.
- The ability to understand and manage the franchisor/franchisee relationship.
- An appreciation for good franchisee operations.
- A commitment to the success of his or her franchisees.
Master franchisees that lack these skills can be very detrimental to a market and actually undermine the success of the market by creating discord among franchisees, and even turning franchisees against their own concept. Talk in depth with existing franchisees about their experiences with their master franchisee. The master role is sometimes called a Development Agent or Area Developer and, while there can be variations, the role is essentially the same. Bottom line: find out who the “middleman” is, and make sure they are a person with good values and a commitment to the success of their franchisees. This can be even more important than the quality of the franchise parent.
A last note: not all franchise systems have the middle role. Some master franchisees also are the ones who open and own all the units (versus recruiting other franchisees to do so).
Choosing A Franchise
If you determine that franchising is a good avenue to business ownership, one of the most important considerations is this: don’t let your excitement about going into business for yourself, or about a certain concept, cloud your judgment or make you skip a proper investigation of the concept. There are thousands of franchises in the United States. Be open minded when first investigating types of franchises, and don’t have tunnel vision about which one you think interests you. Once you narrow down your choices, investigate more than one at least semi-thoroughly.
The franchisor is required by law to provide you with a Uniform Franchise Offering Circular (U.F.O.C.). It should contain a list of existing franchisees. Contact as many as you can! See what their experience has been. If possible, get them to let you review their financial statements and see how they are really doing. If you can’t review actual numbers of other franchisees, don’t rely on the franchisor’s projections. Franchisees typically like to share their success—if they are doing well. Plus, getting a new franchisee in the system is good for the chain, which should motivate them to share. Some will be sensitive about the confidentiality of the information, but if no one will let you see their books, that’s a warning sign that the franchise may not be doing well in your market or overall.
Never get hasty—you will strongly regret it if you do, and end up making a bad choice. Also investigate resells of existing franchise units—they can represent a great opportunity and a smaller financial investment. Franchising can be an excellent avenue to business ownership. Investigate carefully, make objective judgments, and make sure the franchise is delivering value to its franchisees for the royalties and independence they require you to give up—and then get started! Conclusion
There is value in both new and existing franchise concepts. Obviously, the newer a
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