Starting a business is a tried-and-tested way to invest money and build wealth. However, not everyone can start a business from scratch. It requires a unique business idea that’ll stand out in the long term and presents challenges you might not be able to manage as a budding entrepreneur.
If you want to skip the guesswork, consider buying a franchise instead. Franchising allows you to capitalize on an already-established brand to advance your entrepreneurial career. With that in mind, let’s discuss what to consider before buying a franchise to answer the question, “Is franchising a good investment?”
What is a Franchise?
A franchise is a partnership between a franchisor who owns the original brand and a franchisee who buys the rights to use the brand’s name, concept, processes, and goods in another branch or location.
While buying a franchise may seem exciting, weighing its pros and cons is essential to ensure its success. For starters, franchising allows you to leverage a recognized brand to access its customer base. As such, you won’t have trouble attracting buyers during initial operations. You can also leverage tried-and-tested business models that worked for the franchisor to expand the enterprise.
On the other hand, franchising provides limited flexibility since you must follow the franchisor’s rules. Those regulations may leave you with little room for creativity and innovation.
9 Things to Consider Before Buying a Franchise
1. Startup cost
Cost is a significant drawback that hinders many entrepreneurs from franchising because it often exceeds the price of launching a business from scratch. Typically, franchises entail the following startup expenses:
- Franchise fee: A one-time cost of buying the license to franchise a brand legally. Popular brands, like McDonald’s and Jollibee, typically have higher prices.
- Royalties: Most franchisors charge a percentage of your monthly gross sales as royalty payments.
- Marketing: A portion of your monthly sales goes toward marketing to drive customers to your franchise.
- Supplies: While franchisors often provide free supplies as part of the franchise package, you may have to buy subsequent batches directly from them because most don’t allow franchisees to source their supplies so the franchise can maintain consistent quality.
2. Brand reputation
Not all big-name companies are fit for franchising. You must consider their reputation—do they provide unique products and services? Have they ever been caught up in controversies? Do they have a considerable following? Remember, franchisees also suffer if a company fails, so choose a brand with a well-established reputation.
3. Support
Franchisors generally provide support to help franchisees meet their standards and requirements. It may include hands-on training to demonstrate their day-to-day processes or pre-opening assistance to address site construction, supplies, and equipment needs. Some even provide marketing and advertising support to help you attract crowds.
4. Market research
Understanding market demand and competition is vital to your franchise’s future success. For example, opening another burger joint on a busy street with similar establishments might drown your business out. So, do your due diligence—seek advice from business consultants, perform market research, and talk to other franchisees to identify potential market risks and maximize your reach.
5. Long-term goals
What do you wish to get out of the franchise? Evaluating your long-term goals provides a strategic trajectory for the franchise and helps you make decisions that align with your desired outcomes.
For instance, assessing its growth potential, like opportunities to open more branches in the future, enables you to determine if it can fulfill your career aspirations down the line.
6. Exit strategy
While it might seem counterintuitive to consider your departure from a business before starting, an exit strategy is vital to long-term planning. Do you plan to close operations after meeting your goals, or will you leave the franchise to a successor? Understanding this factor before launch helps align your future decisions and dreams for a more fulfilling ownership journey.
7. Legal considerations
Research your prospective company’s registration with the Bureau of Internal Revenue (BIR), Securities and Exchange Commission (SEC), and Department of Trade and Industry (DTI) to avoid facing penalties and lawsuits. You might want to pick another brand if they have a history of legal issues to avoid getting dragged into future conflicts.
8. Lack of flexibility
As mentioned, you must strictly stick to the franchisor’s rules. While this agreement helps you avoid the burden of developing products or services, it often limits creativity and innovation. Take food franchises, for example. Franchisees don’t have the authority to vary menu items or adjust portions or ingredients because they must follow instructions to a tee.
9. Your skills and experience
Picking a brand that matches your skills, passions, and experiences is vital to enjoying your business. Are you capable of meeting the demands of owning a franchise? Are you passionate about the industry and the franchise concept?
For instance, if you have a penchant for teaching, you could franchise a tutorial center and become a teacher. Working in an industry you love can make your investment and efforts worthwhile.
Set Your Franchise Up for Success
Franchising is an exciting venture for many entrepreneurs like yourself. However, like all career endeavors, it’s risky without adequate preparation and strategic planning. By pondering the above considerations, you can make more informed decisions for long-term success and fulfillment in the franchising industry.
An essential aspect of launching any business is financing. If you need a loan to buy a franchise, Asialink Finance Corporation has your back. We provide low-interest business loans in the Philippines to help Filipinos transform their entrepreneurial dreams into reality.
Contact us for more information!
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