Coast River Business Journal, June 2012
Kevin Leahy, Executive Director, CEDR and SBDC
An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.
What is Franchising?
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor's quality standards.
Franchising is often described as a business or industry. It is not. Franchising is a method of doing business. You can become a business owner under a franchise agreement. Franchising has been adopted and used by a wide variety of industries and businesses as a means of efficient expansion. Under a franchise system, an individually owned business is operated as though it were part of a large company. The parent company acts as the umbrella organization. This company authorizes the franchise outlets to use its trademark and benefits from the image of a larger organization.
Franchising is based on mutual trust between the franchisor and franchisee. The franchisor provides the business expertise that otherwise would not be available to the franchisee. The franchisee brings to the franchise operation the entrepreneurial spirit and drive necessary to make the franchise a success.
Generally, the franchisor or umbrella organization will dictate standard designs for business facilities; specify the use of certain equipment, products or services; and provide instruction on operating the franchise in accordance with the standards set forth for all franchise operations. While most people think of a franchise as being product or service oriented, such as the case with fast food, restaurant or hotel businesses, franchises may also be found in the wholesale and manufacturing industries.
Franchising offers many advantages to an entrepreneur. As a small business person you can “buy into” a well-established venture, with a proven formula for success. This offers you significant odds for success, when the franchise formula is carefully followed. The franchisor should provide solid advice (often mandates), site selection, management, advertising, accounting and product research and development to aid the overall franchise organization’s success. Greater efficiency and profitability result from uniform coordination.
The franchisor collects a fee for the right to use its name and systems. Prices can vary dramatically. The franchisee is given the right to represent the franchisor in a given geographical area for a specified length of time (commonly five to 10 years). The franchiser also collects a royalty fee (generally ranging from 2 percent to 20 percent of your gross sales), and it also may make a profit on items it sells to you, as the franchisee.
Is the concept of a franchise right for you? To make your business a success, you must be willing to accept the orders, vision and procedures set forth by the franchisor. Any ideas you have for customizing the proven formula must typically be approved by the franchisor. In a sense, you forego some of the independence you may have sought as an entrepreneur. Of course, the trade-off in autonomy for the support system must be weighed against the increased chances for success.
If you are concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for you. But remember that hard work, dedication, and sacrifice are essential to the success of any business venture, including franchising
At our Clatsop Community College Small Business Development Center, we provide you with the tools and information needed to make an informed decision, plus a business plan process that lays out a specific plan and estimate of costs involved with opening a franchise, which can run from several thousand to well over a hundred thousand dollars to open and sustain a franchise.
Contact us or the Small Business Development Centers at Tillamook Bay Community College or Oregon Coast Community College for an appointment to see if a franchise model is right for you.
CEDR is Clatsop Economic Development Resources. SBDC is the Small Business Development Center at Clatsop Community College. Website: www.clatsoped.com. Email: firstname.lastname@example.org. Office 503-338-2402.