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March 19, 2019

Franchising 101


Starting a business from scratch can feel overwhelming, which is one of the reasons why a franchise is attractive to a lot of entrepreneurs. Franchise ownership offers many of the benefits of launching a business independently, but it includes a level of support from the franchisor that would not otherwise exist. Depending on the business, there’s also brand recognition that can boost your chances of success.

In addition to recognition in the marketplace, buying a franchise can set you up for success, especially when it’s already been proven that consumers are loyal to the brand and there are operational strategies that work in other locations. It’s a great way to avoid making many of the mistakes that small business owners make because they are starting from scratch.

Many franchisors provide extensive resources and support to franchisees because they are motivated to help you succeed. Instead of trial and error, you have a playbook that tells you what works and what doesn’t work. The operational training provided is one of the greatest benefits of starting a franchise. There’s also the fact that franchisors perform market research, which means you immediately have access to data that can drive the success of your business. The data provided is something that would have put a dent in your budget, yet it’s provided free of charge.

As a franchise owner, you will have the benefit of being part of a large group, which means purchasing supplies, materials and services offers many opportunities for negotiating favorable pricing and discounts. You have name recognition in your favor, which increases your chances of a vendor accepting your offer during negotiations. Although there is a higher entry cost for starting a franchise, there is a much greater chance that you will be successful. Unfortunately, more than 50% of new businesses fail within the first 5 years, but the numbers are lower for franchises.

In addition to brand recognition and purchasing power, franchises can also pool their resources for the purpose of advertising. This is a significant benefit since the cost of marketing is often high. For entrepreneurs who desire to build an empire, there’s a great chance of buying another franchise after you achieve success with the first location. In fact, there are many franchise owners who have multiple locations. This speaks to the relative ease of running a franchise when compared to launching a business independently.

There are important franchise laws to consider that are to your benefit. The FTC’s Franchise Rule was passed in 1979, which requires franchisors to fully disclose a wealth of information to prospective franchisees so that they can make an informed decision about buying the business. It also allows for what’s known as a “cooling off” period, which means you have 10 days to change your mind.

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