Franchising, 101

Caught up in a pervasive economic flux, many of us are exploring new employment opportunities. Franchise ownership represents one such opportunity.   If you are considering the purchase of a franchise, you’ll want to remember the old adage about looking before leaping.  While franchise ownership can be emotionally and financially rewarding, there are a number of factors to explore before signing on the dotted line.

It is essential to make an accurate and dispassionate assessment of your character from a professional point of view.  Are you mentally and physically equipped to devote long hours to a business, manage relationships with vendors as well as a demanding general public, direct staff, and analyze finances?  How do you confront setbacks?  Do you wait for change to occur, or are you prone to craft and launch Plan Bs and even Cs with focus, diligence, and enthusiasm?

If you sense that you are a feasible candidate for franchise ownership, there are other issues to take under consideration.

Finances are a major concern.  You’ll require enough capital to purchase the franchise, hire and maintain staff, procure strategic supplies and equipment, advertise, fund utilities if they are not included in the rent, and of course, pay yourself.  And, it may require more capital than you’ve calculated.   Historically, the majority of franchises do not run “in the black” until two or more years after their grand openings.

As location is one of the keys to a successful franchise, conduct your research thoroughly.  Location is not confined to pure geography: you must learn the nature/demographics of your prospective customer base. Don’t discount cultural influences that can impact the type of products your customers will purchase as well as the frequency with which they will buy them.  For instance, if you open a McDonald’s in a predominantly East Indian area, don’t expect your burgers to fly out the door; as the cow is a sacred animal, it is against the Hindu religion to eat beef.

Investigate the competition that you’ll be facing, including its longevity.  Consumers may be curious about “the new kid on the block” but they develop loyalty to the businesses with which they are familiar, if those businesses have serviced them satisfactorily.

Examine the traffic patterns flowing into and out of your target area.   Should you open a pizzeria, for example, in a town whose main institution is a school with a lunch program, the bulk of your business will probably not occur until 3 PM or later.  You may be more likely to achieve your gross profit objectives if you establish the pizzeria in an area that supports local businesses, whose employees will patronize you for lunch and grab a quick dinner on the run.

Once you’ve determined your location, use sound negotiating skills to secure an optimal lease.  The most favorable leasing agreements are not too lengthy, in case you need to abdicate due to a failing business, and not too brief, should the franchise take off like gangbusters and you wish to remain on the property.

Like most things in life, franchises represent a risk.  And, like most things in life, you will only reap from a franchise what you put into it.  If you feel that you have what it takes, Godspeed and best of luck!


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