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Why buy a franchise?
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Why
Would You Want to Buy a Franchise?
Franchising
is a method of doing business by which a franchisee is
granted the right to engage in business under a marketing plan
or system prescribed and controlled substantially or in part by
a franchisor and to make substantial use of the franchisor’s
trademark, name, logos, or advertising.
The benefit of buying a franchise is that much of the work has
been done for you. Generally, you are given the product or
service ready to sell. Often, the equipment, systems, policies,
and procedures have all been laid out by the franchisor. The raw
materials you need to produce your product or service is often
available from the franchisor.
Buying a franchise is less risky than starting a business from
scratch, since the franchisor has experienced (usually many
times over) the pain of getting started. You bring your cash and
hard work, and the franchisor will lay out the roadmap to
success. The cash requirements and total outlays vary greatly
but must be disclosed by the franchisor in the franchise
prospectus.
Who
Should Consider Buying a Franchise?
Those who have never started their own business. A
franchise gives a carefully structured business format,
training, and support from an experienced source. If you are not
sure you’re ready to start a new business but want to strike
out on your own, a franchise may be the answer for you.
Those who have strong financial resources. Since buying
a new franchise is much like starting your own business, in
addition to having to pay the franchise fees, you will probably
experience negative cash flows for the first few months. You
should have the financial resources to make it through those
months. Alternatively, buying a franchise that’s already
established is much like buying a business and can have
established cash flows already in place.
Those
who have come from the corporate world where they are used to
structure and organization. It eases the transition from
corporate to private enterprise.
Should I
Buy a New Franchise or an Existing Franchise?
The
benefits of a franchise can be obtained through the purchase of
either a new franchise or an existing franchise from a
franchisee that’s already up and running. Each option has its
benefits and potential drawbacks—
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When you purchase a new
franchise . . . |
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cash
flow takes time to develop |
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the purchase price
is lower, but requires more cash |
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a customer base
must be established |
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the franchise fee
must be paid |
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On the other hand, when you purchase an established
franchise . . . |
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cash flow is
established and predictable |
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the purchase price
is higher, but more leveraged |
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a predictable
customer base already exists |
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you pay a lower
transfer fee instead of the franchise fee |
Understanding why a person is selling his or her business can
help you structure a deal that works for you and the seller.
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| Mercury is a god.
Also known as the god of trade, profit and commerce. His
name is apparently derived from the Latin merx or mercator, a
merchant. |
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