Answers to Franchise Frequently Asked Questions

In this article I cover the most frequently asked question about the franchise industry, the opportunity costs, and my responses to the question posed.

Answer: Franchising is where you buy the rights to a business concept, trademarks & know how. In return you pay a franchise fee and a percentage of your profits.

Answer: A franchise is, in its simplest terms, an agreement between the franchisor and the franchisee, whereby the franchisee has the rights to use the logos and trademarks of the franchisor and the ability to market the franchisors products. Both parties commit to a legal agreement which protects both their interests. The franchisee usually pays an initial franchise fee and ongoing royalty payments.

Question: Is it better to buy a franchise opportunity or start my own business?

Answer: Based on the surveys carried out by the US Department of Commerce & NatWest/BFA, the majority of franchisees are still trading profitably after five years. Everyone knows that the majority of people who start out in business on their own, I am sad to say, end up failing within the first three years. When you buy a franchise business, in return for a franchise fee, you receive training and ongoing support. You also benefit from the knowledge that the franchisor has picked up over many years.

Answer: There are no fixed prices for a franchise opportunity. Depending on your budget there are franchises to suit most people ranging from only a few thousand, to over a million.

Answer: Do a search on the internet for the following: "franchise", "business franchise" & "franchise opportunity". You will find a wealth of material on the internet. You can also buy magazines that specialise in franchises and of course, you should attend franchise exhibitions where you can meet the franchisors or their agents and ask questions. At the exhibitions, in some cases you will also be able to touch and feel the products that form the cornerstone of the franchise!

Answer: Most banks have special units set up to help potential franchisees. In many cases the franchisor has done the hard work for you and arranged special terms with lending institutions.

Answer: The best franchise for you is not necessarily the business that makes the most money! Buy a franchise which suits your lifestyle and is interesting to you. If you like the products that you are marketing, then you are much more likely to enjoy your work!

Answer: If your franchise business is trading profitably, then you should be able to sell it like any other business. Your franchise agreement will go into detail regarding the processes that are involved in selling the business. Unfortunately, if your business is not making a profit, then it will be difficult to find a buyer.

Finally, always take legal advice before signing any franchise agreement. Your lawyer has to ensure that the agreement is fair for both parties. Your accountant will help in evaluating the profit potential of the franchise opportunity.

Naz Daud is the founder of CityLocal. This Business Franchise Opportunity is for people who would like to work from home and be their own boss.

4 Tips to Remember When Talking to Franchisors

Franchising research is a dangerous business for potential Franchisees. The Franchisor can hold all the cards….unless you see the relationship for what it is!

I’ve set out below 4 rules that I go into in more depth in my book. Ignore these at your peril, but take them into account and you and the Franchisor can have discussions with the deck not stacked against you.

1) The Franchisor is wishing to enter into a contract with you that will enable him to grow his business. The relationship that you develop is based around MUTUAL benefit. In the light of this, there is no need to feel that you have to impress the Franchisor or that when you meet with them you are applying for a job.

2) The purchase price of the Franchise should be in proportion to the rewards that are realistically on offer. Don’t forget, every penny spent in the purchase of the Franchise is one less going into the development of the Franchise after purchase.

3) Remind yourself that the person who is taking the biggest risk in this relationship is you. It’s true that the Franchisor wants to grow their Franchise with the right people. However don’t forget that if they don’t sell Franchises they don’t grow their business at all!

4) The Franchisor’s representative is well motivated to sell you a franchise. Remember, if this was a job interview you would be the salesman in the relationship. In fact you are the buyer and the Franchisor is the salesman. Tailor your approach in the light of this.

Don’t forget these rules when interviewing Franchisors.

NOTE YOU are interviewing THEM -- NOT vice versa!

Franchise Business Frequently Asked Questions

4 Tips to Remember When Talking to Franchisors