Starting a business is tedious, expensive, and risky. It involves a lot of paperwork, market studies, coordinating with concerned agencies, scouting for the right place, and providing a significant amount of money for lease, initial inventory, furniture, and equipment.
However, nowadays, those thinking of starting a business have the option to start from scratch or simply get a franchise from reputable establishments. It is a fact that many success stories in business started from scratch and the vision of their founders. Starting from scratch is good if the business has something innovative to offer and can sell its products at a competitive and affordable price. It also must find the right business site, near its target market, and be able to advertise well in order to make consumers be aware of its products or services. This can take a long time, a lot of money, and uncertain market response.
On the other hand, considering the present aggressive competition in business, a franchise offers an enticing alternative. Franchising is a relatively new concept in business that caught the imagination of many business-minded people. In non-technical language, it simply means putting up a branch of a well-known company wherein the franchisee pays an agreed amount to the franchisor for the use of its brand name and identity. The franchise fee may vary according to the size of the franchisor’s customer base, popularity, and prospective profits. In addition, the franchisor offers its track record and effective business strategy. In the last few years, franchising became so popular that almost all successful companies have at least a few franchises. Many have even ventured into franchising overseas.
Despite the fact that big businesses demand a hefty sum of money as franchise fee, the benefits of franchising far outweigh its price. A good franchise offers a total package that includes site selection, lease negotiation, management and personnel training, and store design in addition to allowing the use of its trademark. It also provides continuing support on marketing, quality assurance, and troubleshooting to ensure that all franchises follow the same standards of quality. Hence, in retail outlets, processes are standardized, quality is assured, and customers are confident that they are getting their money’s worth.
Take the case of one of the most popular and successful franchises: McDonald’s. Today, McDonald’s franchise stores are everywhere, not only in the US but also in many countries abroad. When a customer walks into a McDonald’s outlet anywhere in the world, he can expect the same high quality of food and service.
This is because one of the most significant advantages of franchising is that the retail will have access to the knowledge and expertise that enabled the franchisor to develop and expand its business. Since each franchise will adopt the same strategy that eventually developed from such know-how, all of them share and maintain a solid business platform. Their standard operating procedures (e.g., product pricing, recruitment, and marketing) have already been tried and tested such that many of the early mistakes have already been detected and addressed. Hence, the risk of failing is greatly reduced compared to an entrepreneur who is just starting to establish a business independently.
If marketing and purchasing are centralized, they result in economies of scale, which means lower costs and presumably higher profits. Moreover, all franchise stores benefit from the aggressive and sustained advertising, marketing, and promotional programs handled by the main management. The franchisor’s business plan, operations manuals, and market analysis are also readily available, as well as the exact figure needed to fund the new franchise.
Assuming that the franchise is maintained according to the terms of the contract, initial investment can be recouped within a considerably short period. On top of the other benefits of franchising, the prospect of recouping investment early should be an irresistible come-on to any enterprising person.
The arrangement is also beneficial to the franchisor since it is assured of profits even with the franchise fee alone. The management of all franchises is centralized but the responsibility for the hiring of personnel and the day-to-day operations of each outlet rests on the franchisee. This leaves the central management free to focus on marketing thrusts and product research.
The concept of franchising is important because it gives the franchisee a chance to go into business for himself while enjoying the support and customer base of a mother company. In this arrangement, a safety net is provided for the franchisee’s investment since a good franchisor will certainly want to ensure that its good name in the business is upheld and that the new franchise will be viable for the sake of both parties. Moreover, the concept does not require direct experience from the franchisee. Therefore, it opens up a lot of access to various types of business that he might not have otherwise considered.
Indeed, franchising has become an important concept in business because it has proven that starting a business need not be difficult and risky. In fact, with franchising, it can be a piece of cake.