What is Franchising?
Franchising is the replication of a proven business model that offers independent operators a system, instant name recognition, training, and support. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a certain period of time. The franchisee agrees to pay a percentage of gross monthly sales called a royalty fee, and initial and/or ongoing fees for the right to do business under the franchisor’s name and system.
What Businesses are Franchised?
Franchises are in almost every industry and market. The International Franchise Association (IFA) now has 75 different business categories to describe its members.
• 56% of quick service restaurants are franchises
• 18% of lodging businesses are franchises
• 14% of retail food are franchises
• 13% of full service restaurants are franchises
What are the Steps to Buying a Franchise?
1. Select a Franchise that meets your needs
2. Fill out a confidential franchise application
3. Review Franchise Disclosure Document (FDD)
4. Prepare a budget based on opening costs
5. Research franchise and speak with owners
6. Interview with franchisor / attend discover day
7. Sign Franchise Agreement & start working!
What are Important Factors when Selecting a Franchise?
When considering & selecting franchises, there are a number of things to consider:
• Does it meet your need and goals?
• Market Demand
• Competition
• Name recognition
• Quality of the brand
• Your ability to operate the business
• Market presence
• Growth potential
• Training & support
• Franchisor experience
What is an FDD?
All franchisors are required by law to publish an FDD (Franchise Disclosure Document). The FDD contains details about the franchise offering & terms of the franchise agreement. Most franchisors require you to fill out an application before they will send you an FDD. While all FDDs follow the format specified by the FTC, all are different in content & terms.
What are typical Franchise Opening Costs?
Our FDD goes into great detail about the estimated initial investment in a VR office, but here is a brief check list of costs to consider for opening a new franchise in any industry:
• Royalty payments
• Advertising fees
• Other monthly fees
• Grand opening & other initial promotion costs
• Business/Operating licenses
• Your living expenses
• Product or service supply costs
• Equipment
• Training
• Legal, financial & accounting advice costs
• Insurance; business/health
• Compliance with local law
• Employee salaries & benefits
How can I conduct a Due Diligence before Buying a Franchise?
One of the most efficient ways of conducting a due diligence on a franchisor is contacting current owners. Here are some sample questions to ask current franchisees when you are evaluating a franchise:
• How long have you owned your business?
• What do you think is key to running a successful unit in this franchise?
• What do the successful owners do vs. the unsuccessful owners?
• Do you enjoy the business?
• What would you do differently in starting up?
• How much should I budget for opening costs?
How often do businesses actually change hands?
A U. S. business sale occurs every 3.75 seconds, every day. That’s one in every five firms changing ownership each year (19.7%). Owner tenure averages 4.1 years per business, meaning a sale will occur 2.5 times during each decade of its lifetime. Sales of well-run, profitable businesses are accelerating in today’s economic climate. We know because our success depends on keeping abreast of this area’s market for businesses, large and small, whether potential purchasers may be local or not. We ought to know, because…
VR Has Sold More Businesses In The World Than Anyone. ® Contact Us for more information.