If you already run a successful business, you need to congratulate yourself as this is certainly no easy task. It takes a lot of hard work and determination to ensure everything runs smoothly. You need to create effective marketing campaigns that will attract new customers and encourage sales, prepare realistic budgets, hire and train reliable employees and conduct detailed accounting and financial reports to monitor how well the business is performing.
Once you have mastered these tasks, you may reach the point where you would like to expand your current business. You can always hire additional employees, market more aggressively or expand your current product line. However, there is another very viable alternative you should definitely consider - franchising your business! I'm going to discuss some of the important elements of franchising to help you decide if this is the right route for you.
Types of Franchises
There are basically two different types of franchises. You can purchase the rights to one location of a successful existing business. Another option is to purchase a master franchise. This enables you to develop businesses in multiple locations. You can then choose to sub-franchise these within a specific geographic area. You need to decide how much time, money and energy you wish to devote to the expansion process. This will help you determine which type of franchise is most suitable for you.
What the Franchisee Will Receive
If you are planning to buy a franchise, you are known as the franchisee and the owner of the successful established business is called a franchiser. The joint venture or contractual relationship that is formed during the franchising process includes a copy for sale and lease of the existing business. This document contains all of the key elements that contributed to the success of the original business. As a franchisee, you will need to pay close attention to these elements in order to establish successful businesses in one or more new locations.
The copy kit you will receive should contain many pieces of valuable information:
• Package of leasehold improvements
• Sub-lease for a location
• Initial inventory package
• List of changes to the exterior of a building that will be instantly recognizable
• List of fixtures and furniture that includes any relevant trademarks and logos
• Initial training package
• Ongoing support system including marketing, general business management expertise and accounting
What the Franchiser Will Receive
In return for providing the copy kit and support for franchising a turn-key business, the franchiser will receive a franchise fee. This varies depending on each particular franchise so you need to discuss the amount beforehand. You will also be required to pay the franchiser a royalty so this individual can receive a percentage of the daily profits of the new business. Depending on the type of business you are purchasing and the degree of involvement required by the franchiser, you can expect to pay from 2 percent of the gross sales revenue to 50 percent of the net profits.
Some franchisers may also require you to pay from 3 to 5 percent of your revenues to assist with national or international marketing and promotion efforts. This helps cover the cost of expenses such as signage, logos and products required to establish a corporate identity for the business. Some franchisers will also charge you a service fee to provide you with the required stock and inventory for your new business.
Although you will own the business when you become a franchisee, the franchise contract ensures you follow a standard set of procedures. If you are a very creative individual who wants to maintain full control over your business, you need to consider this. You will have to sacrifice some creative freedom for an opportunity to purchase a business that is already successful. Now that you know more about how the franchising process works, we suggest you read our article on finding a franchise to buy .