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What You Should Think About When Investing In a Franchise

Category: Business

Are you debating on whether or not you should invest in fast-food franchises? I mean, why not? Many entrepreneurs do, considering the food industry is one of the largest industries on the planet. Entering the fast-food industry can reap so many benefits, including a supported structure that will help you get things kicked off. However, there are things you may need to consider before diving in.

Research on Franchising

What is a franchise, and how do you get started? If you’re transitioning into becoming a first time business owner, you may be enticed by the benefits franchises can offer. However, you need to know what you’re getting yourself into before you decide on making a big investment.

Going back to the question, what is a franchise? Essentially, a franchise is a business opportunity that allows you (the franchisee) to start a business by legally using the franchisor’s brand, expertise, etc. Basically allowing you the right to use someone else’s system of business.

Understanding the Franchise Agreement
It’s important to carefully assess your franchise agreement, which is basically a binding agreement between a franchisee and franchisor for a set amount of time. It covers a step by step guide on how you will run your franchise. Try consulting with a professional first just so you are aware of what your rights, and understand the responsibilities under every clause.

Financial Risks

There is always going to financial risks when you are embarking on any business opportunities.  There are certain risks you need to be aware of in franchising that might not apply to other types of business, and you need to be prepared to face them. For example:

  • You may need additional funds to cover additional costs in the term of your franchise agreement
  • Consumer demand may not be as prevalent in one location compared to others.
  • Depending on your franchise agreement, you may not have a choice in regards to where you will be getting your stock. You might find another supplier with cheaper products, but your franchisor may have long-term contracts with their current suppliers.

Before committing to a franchise you need to prepare yourself and know if you’re able to recover from your upfront costs, and at the same time make a profit during the term of your franchise agreement.

Having that said, owning a franchise reaps its own benefits, including the following:

franchise

Brand Power

There are a lot  of popular fast-food franchises to choose from like, Hot Dog on A Stick and Papa John’s. By choosing to invest in fast-food franchises, you will definitely benefit from brand recognition. When starting your own business you have to build on your own brand, whereas if you choose a franchise, there are customers who know about you and are already excited with what you bring to the table.

Corporate Power

When you invest in a franchise your franchisor will provide you with a support structure to help get you started. Your franchisor will have a set training system for both you and your staff, and will provide support in preparing for your grand opening. The benefits definitely outweigh the risks when you’re comparing it to building a brand on your own.

Room for Growth

There are some fast-food industries whose franchise agreements are a little more flexible, allowing you to make small improvements in your store. Making little tweaks on the menu, or reevaluating the decor of your store are some ways you can express creativity in your unit. Be sure to carefully review the rules and regulations of your contract with potential franchisors, especially if individual freedom is important to you.

All in all, if you’re considering making an investment on a franchise it’s important to be conscious of the hurdles you may face, despite all the benefits. Manage your finances and assess all possibilities, good or bad. Happy hunting!