Franchise may cut risk, but comes with price
July 16, 2012
By Paul Howard, ASU-SBDC Business Development Specialist
There seems to be many well-known businesses opening in San Angelo over the past few years.
Some are franchises we have seen in other areas of Texas. Potential small business owners who have always dreamed of being self-employed are sometimes unsure where to begin. Many have found buying a franchise provides them with a lower risk opportunity to sell familiar products and services.
The franchiser typically assists the business owner with training on how to run the business properly. Since franchises have a tested business model, they can be more likely than other startups to survive. However, no business venture comes with a 100 percent guarantee of success.
The franchiser also helps with finding a suitable location as well as support throughout the business relationship. They may provide all the equipment, supplies and marketing materials to get the business up and running.
The franchisee gets name recognition which proves to be valuable. There are likely to be a number of potential customers who are familiar with the products and services, therefore saving money on marketing.
As a franchisee you will be giving the parent company control over several aspects of your business. Some of these may be the appearance of the building and the inside floor plan, the products and services offered, the location of your business and hours of operation.
Starting a small business requires capital. With a franchise you can expect to pay an initial fee, which may be nonrefundable, and also monthly royalty fees based on a percentage of sales.
Before you purchase a franchise, determine goals for the business. How much time and money are you willing to commit? Will you be managing the business or will you hire someone else to do it? Will you continue with your current employment or will this be your main stream of income? Do you want to expand in the future?
Work out a reasonable budget as to how much you are willing to spend to purchase the franchise. How will you come up with the capital? Do you have savings, additional income or personal assets you can liquidate?
As with any small business venture it is suggested you do sufficient research to find the right opportunity. Will the franchise offer products and/or services that are in demand in the area? How long will that demand last? Who will be your competitors? Is the market oversaturated?
Explore your possibilities by speaking with other franchise owners. Ask them if their franchiser delivered as promised, how the business is doing, how much support was provided by the franchiser and if training was adequate.
The advisers at the SBDC have the expertise to assist you with purchasing a franchise. Please give us a call or come by our office.
“Business Tips” was written by Paul Howard, Business Development Specialist and Certified Business Adviser IV of Angelo State University’s Small Business Development Center. Contact him at Paul.Howard@angelo.edu.