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Blueprint for Success - Part 4

Written by : John McGavin
2007-10-15

The Spectrum of Franchising

Blueprint for success

Franchises exist in over 75 industries. While we often think of restaurants, they are only part of what is available. In fact, we see franchising being applied successfully to more and more industries.

There is much information available listing franchises and categorizing them based on the function of the business. You may have seen books, magazines or web sites that do this. However, our clients tell us that looking at the structure of the business and the owner's function in the business is more helpful to them. Does it really matter what the product is, if the business will give you the results you want and the sort of operation that fits you?

The Spectrum of Franchising categorizes businesses by how they work for you and what your role would be in that particular business. At one extreme are inbound retail businesses. They tend to be relatively higher investments, site sensitive, with sales driven by advertising rather than direct sales.

Growth occurs by adding additional locations. At the other extreme are service businesses. They are relatively low investments, not location dependent, and are driven by direct sales. Growth in a service business comes by adding more sales people!

Your FranNet consultant can review this model in more detail. What sort of business structure is most appealing to you?

Solidifying Your Financial Plan

Obviously, you need to be very concerned about your financial ability to not only buy a franchise but also to continue to operate it until such a time as it begins to make a profit. Fortunately, careful due diligence will enable you to determine the financial requirements of your business before you make your decision. Those requirements fall into five basic categories and will be described in detail in the Uniform Offering Circular

Every business will have certain start-up costs. In addition to the normal capital requirements to launch a business, a franchise will assess an initial fee that typically covers the rights to use the name and trademarks of the company, the rights to distribute the company's products and/or services, access to the franchisor's established business systems, initial training, assistance with site selection and a protected territory. An ongoing fee, or royalty, pays for continued support provided by the franchisor, as well as continued use of the trademarks and business systems, and enhancements.

Operating capital (sometimes included with start-up cost) is another important factor. It is the money you will need to operate your business until it becomes self-sufficient.

What does it cost?

As you review these costs, it is important to remember that there is no automatic Correlation between what it costs to buy a franchise and how much money you you will make. The cost of the business has little to do with how much you can make.

blueprint for success

Typically, you will need 35-50 percent of the total investment in cash. Assuming your credit is acceptable, financing of the balance is usually not difficult. Your FranNet Associate will help you identify financing options.
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