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How To Start A Franchise System

How To Start A Franchise System

The temptation to prematurely or undeserving develop a franchise is largely caused by one flaw in thinking.

Put simply, that making money in franchising is just about selling franchises. When consulting my company’s prospects, I am quick to point out that selling franchises and the revenue received from the initial franchise fees is a zero-sum game.
In the end, the costs and responsibilities put on a Franchisor are extensive, and the franchise fees, although significant, generally only provide marginal profit to the Franchisor executing the start- up tasks and other requirements necessary to assist a new owner in the establishment of a franchise location.Ho Start A Franchise System | How To Start A Franchise System | How To Start A Franchise System | How To Start A Franchise System
Franchise profits, the kind of profits that make franchising a financial windfall for the owner(s), are derived from an annuity stream of on-going franchise royalty payments generated by your Franchisees’ success. There is simply no substitution for profitability in a franchise model. Without a long-term cash flow source, a Franchisor will quickly find they are short on capital following a hopeful franchise unit sales run-up. As with any business, franchises experience growth plateaus and maturity points, and franchises need constant royalty cash flow to survive and prosper. The failure of a franchise to provide its units with a quality product or service that is in high demand and will steadily generate royalties, will ultimately mean failure for a franchise network and the Franchisor.

So, if your business sounds more like the Catfish Purveyor, then it is likely franchising can provide you with the means to accomplish significant growth and substantial profits. On the other hand, if your business is new, unproven or now struggling, it is wise to develop an action plan and consider franchising at a later date, or consider another means for expanding your business.

 How To Start A Franchise System
How To Start A Franchise System

Things To Consider Before Franchising

Many people spend huge amounts of money in acquiring a franchise business. The rewards from such businesses are undoubtedly plentiful though requires some hard work. Due to the huge amount of money involved, you need to investigate the benefits and drawbacks of a given business.


It is useful to verify the track record of the company in which you wish to invest. Check on the share price trends because by buying a franchise, you invest in that very company.

It is important to match the funding amount with the cost of the franchise you are considering to purchase. Since clicking of the business plan is not guaranteed, you should raise an amount of money that would be sufficient to handle other needs, different from the initial capital, which arises. This includes costs like advertising that you are supposed to bear.

A significant investment is involved in the buying of any franchise. There are franchisors who present sales statements that are exaggerated hence the need to take every single promise cautiously and to ensure that you scrutinize all those hyped statements. Demand for data in the hard format and look critically into the financial projections. This will be helpful in franchisee businesses selection.

Knowing the industries and services that interests you is very important. Some prior knowledge concerning the same can possibly help you to properly manage your franchise. Take considerable time in narrowing down the services or products that are appealing to you. Another aspect to consider before buying any franchise is the brand value of that given service or product. This will help you in judging the commodity’s popularity thus revealing the demand.

Franchisors have varying regulations and rules governing the business that you buy from them. Review the franchisor’s proposed agreement and check if it corresponds to your policy. Discuss with the franchisor in case you desire changes on the same. The company rules that you accept should be those that will not yield any future regrets.

This is an important factor to look for while buying a franchise because poor franchisors and franchisees relationship is a main contributing factor in the failure of most franchising businesses. Try investigating the franchises that have failed in any given year and establish the causes of the same.

This factor helps in ascertaining the profits. You need to know the public’s preference with regard to products or services and cater for such needs. As you continue to learn more techniques on how to understand the market and competition, you also increase your ability to serve and please the public. You can also seek the advice of franchising consultants. This increases your sales and consequently, your profits.

By: Andy Durik http://www.blog.net.au

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