Franchises, also known as chain stores, are businesses operated under a special arrangement. Franchises are moderated industries that follow a set business model, which includes a name, an image, and a set of support services. In exchange for a set-up price and a monthly royalty payment, the franchiser, who owns the trademark of a company, licenses the brand to somebody. The buyer then opens the business and operates it, but the franchises always belong to the original creator. Examples of successful franchises include Gold's Gym® and Dunkin' Donuts®. For somebody considering franchises as a business investment, there are many advantages and disadvantages that should be kept in mind.
The
main advantage of franchises is that the businesses being operated already have
a proven track record of success. Opening a McDonald's, for example, requires
no market
research, as the owner of the trademark will provide all necessary training
and support to the franchisee. This includes site selection, help with leasing,
and even business mentoring.
Franchises are great choices for people who know little about business
ownership and want to get started as soon as possible. They also carry a
powerful image that helps push the business off the ground faster than the same
business without a famous trademark would.
On
the other hand, franchises do present some disadvantages. For starters, they
are expensive. Set-up fees can run over $50,000 US Dollars, and the franchiser
will also take a good monthly percentage of the earnings. Because franchises
must preserve the company image, new business
owners often need to spend large sums of money to comply with the look of the
place, the uniform design, and even the interior fitting of the place. Some
franchises require periodical updates or reforms that must be paid for by the
franchisee.
Another
disadvantage of franchises is the loss of control. A franchisee has little
freedom of choices about how to run his or her business, as changes must be
approved by the owner of the trademark. Many franchise owners complain about
feeling more like employees than as entrepreneurs.
Franchises may be great options for people considering their own business and
looking for support to get started, but as with everything, it is a good idea
to research all available options before making a decision.