McDonald’s is an example of brand franchising. McDonald’s grants the right to sell their branded goods to someone wishing to set up their own business. The licence agreement allows McDonald’s to insist on manufacturing or operating methods and the quality of the product.
To ensure uniformity throughout the world, all franchisees must use standardised McDonald’s branding, menus, design layouts and administration systems. This is an arrangement that can suit both parties very well.
Factors to Consider in Buying a Franchise
Most aspiring franchisees develop their first interests in franchising by patronizing a local franchise business. After having a good experience with the goods or services they purchased the franchise.
Usually, there are many benefits to owning a franchise including brand recognition, a proven business model, support and training. However, purchasing a franchise does not guarantee success.
Even when a franchise is well known, it’s still critical for buyers to do their homework. You should carefully evaluate the business on several key factors. These include:
Whether the ownership model is in-line with your goals and work style.
In franchises, the parent company generally makes decisions about product lines and offerings. All these provide a level of security and stability that comes from belonging to a large organization with a proven track record.
It is important that your vision and passion aligns with the parent company. If you’re the type of person who hates relinquishing control, then a franchise may not be the right business model for you. Alternatively, you can find one with less rigid rules.
Whether you are financially capable to make the investment
Before you invest in a particular franchise system, think about how much money you have to invest, your abilities and your goals. Be brutally honest with yourself.
Like buying an independently owned small business, running a franchise unit requires a healthy upfront investment. The entry fee of franchises vary by brand. In addition, find out all the other ongoing fees you would be responsible for such as royalties, advertising fees, property leases and any inventory or equipment expenses. These costs could add up to a healthy expense.
Evaluate the success rate of that franchise
In most cases, franchises have an advantage over independent businesses when it comes to brand recognition. However, smaller chains may still be in the early days of formalizing their franchise programs, and may not have all the kinks worked out of the business model.
A robust program will include not only general operations training and an introduction to the brand, but also primers on advertising, employee development and supply chain management.
Buyers should ask for the franchise’s Uniform Franchise Offering Circulars (UFOCs), which all franchises must have and includes useful data for analyzing the success of the franchise including annual revenues per location.
In conclusion, you need to determine what kind of business model and support you want. Then you need to use that information to narrow the field and better position for success.
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