For many would-be business owners and newly arrived immigrants in North America or Australia, franchising is often regarded as an option when comes to business opportunities. According to recent surveys, for certain franchises, especially in the food sector, more than 50% of new franchises are taken up by immigrants.
They have found franchising as a speedy way in establishing a business, which is still regarded as a preferred job instead of working as an employee.
However, franchising is not for everyone, and there are certain business and industry specific risks involved that should not be ignored by the new franchisees.
Pros and Cons in Franchising
The concept of franchising has been around for many decades. Here is a list of their pros and cons:
· You can start a business immediately
· There is a wide range of choice to choose from
· The franchisor has a marketing and sales process in place already
· Products and services already available
· You can learn from other franchisees about the business
· Training is provided
· Ability to expand through acquisitions of other franchises
· A large amount of capital cost maybe required
· It is difficult to shift your business once you have started a franchise, as it is usually a long term agreement
· You are unable to make changes to products and services
· Territorial rights means there can be limitations in terms of expansion
· Franchises can collapse, what happens if your franchisor is bankrupt? What would that happen to your business?
What kind Franchising Opportunities are available in North America?
Canada and USA are known to be one of the most “franchised” nations in the world, referring the fact it has more franchises per capita than most of the countries in the world.
In terms of the franchising opportunities, we have seen a wide range of choices, from the traditional food, retail to some innovative franchising ideas such as banks, lending, education opportunities.
Let’s have a look of some of the franchises available:
· Retail: Still a dominating type of franchise in North America, including toy shops, mobile phone shop, 7-11 stores, more interesting ones including pet shops and butchers!
· Real Estate: Yes, it is the most franchised system in North America, there is quite a number of major national and international real estate agents in North America
· Food: North America’s largest franchising industry, including most of the global franchises, including pizza, coffee shops, burger shops, ice cream shops and many more.
· Mobile Businesses ‘” this has nothing to do with mobile phones, this includes mobile cafes, mobile IT supports, and even “mobile coffee boats”
· Financial products ‘” this is one of the fastest growing sectors in franchising industry, at moment, there are Stockbroking Franchise, banking franchise and various Mobile Lending / Mobile Mortgage franchises in North America; there is more to come such as forex trading and financial education franchises coming up.
· Education ‘” Education is another franchise becoming popular in North America, including both academic and non-academic franchises – this is further segmented into children and adult education franchises.
Choosing your franchise ‘” 10 Steps
1. Understand your skills ‘” some have chose the industry they are most familiar with, perhaps you have managed a shop in the past, perhaps you are a chef yourself, then you can master a food franchise fairly easily.
2. Understand the legals ‘” franchising is essentially a legal contract between you and the franchisor, there are limitations and legal obligations, make sure you understand them.
3. Financing cost ‘” some franchises require a large lump-sum upfront payment in join fees, this can range from $10,000 to $300,000, make sure you understand the financing cost and do not push yourself over the limit
4. What can I sell? There are many limitations, especially in the food franchise ‘” you do not have the ultimate decision to decide what to sell
5. Location ‘” Before you start your franchise, carry out your own research, this is especially if you plan to open up a shop, look at what competitors are there
6. Customers ‘” Franchise is a business, you need to know who your customers are, and how to reach them, franchisor will assist you to a certain limit, but you have to do the most yourself
7. Have an exit-strategy ‘” If this franchise does not work, what would you? Can you sell it to someone else very quickly?
8. Rent or Buy ‘” Should you buy a property or rent a property for your shop?
9. Staff Training ‘” How do you train your staff? Many franchises are family businesses, can your family members support you?
10. Is this really for you? Finally, ask yourself this question again ‘” there are many ways to make a living ‘” you can find a job, you can set up a business yourself without restrictions, you can set up a franchise, which way is the best for you?
Costs involved in setting up a franchise
There are several cost items you should be aware when joining a franchise:
1. Join Fee: This is an upfront fee required when you join a franchise, this is similar to a licensing fee which allows you to operate a business under their brand
2. Revenue Sharing: This can come in different ways: It can be a revenue split, where you have to give a percentage of the sales to your franchisor, or the franchisor will ask you to purchase a minimum amount of goods from them every month.
For other industries, such as financial industries, this is typically a percentage of the revenue you generate.
3. Business Costs ‘” like other businesses, there are many business costs involved, the major items being rental cost, staffing cost and marketing costs.
4. For most franchises that we know of, all of these costs are paid by you ‘” not the franchisor. However, franchisors can typically provide some support in terms of sales and marketing.
Once you add up these costs, you may find franchising can be more expensive than operating your own business ‘” therefore, you should always compare franchise as a business option but NOT THE ONLY OPTION.
Franchise vs Your own business
This is a debatable topic ‘” but one should be aware that the 2 approaches are completely different. With franchising, you are under a license to sell certain products and services, in the way, you are kind of like a branch or territory manager instead of a business owner; but under revenue or profit sharing arrangements.
If you own your own business, you have the ultimate freedom to change if necessary, you can start selling juice instead of coffee, you can change a toy shop into a fashion shop if you think there is a better opportunity.
But franchises have many advantages as discussed before, branding is one of the biggest intangible asset that you can use. Millions of people have heard of MacDonalds, Dominos, Kumon, many consumers follow the big names because they are familiar with them.
This is exactly why franchises are successful businesses, because they can continue drawing customers ‘” and for those interested jus operating a business and focus on sales, and do not want be involved in the back-office and administrations, then franchising is certainly a good choice as the central office will assist you in all the administrative duties.