Franchise Functions will make substantial revenue. ( THE GOOD )
Every hour in the United States a franchise is sold. Franchising has grown into a growing and founded business activity. Significant companies are using franchising as a means for diversification, while franchisees seek it as a competitive edge over other small businesses It is apparent that franchising has become a major push in the food industry. Not merely are fast food restaurants franchised today but theme restaurants, catering procedures and family style restaurants are being packaged and promoted to a seemingly inexhaustible market of anxious would-be restaurateurs even during recessionary economic times. Franchising is unique in that it almost certainly is one of the few kinds of business activity that by its very nature recreates alone by building new business devices from within itself. The United States Section of Commerce has reported that over one-third of all retail sales are currently made through franchise stores. This growth is expected to continue.
Buying an existing Franchise prospect ( The Good & The Bad)
Owning a successful franchise in the foodservice industry can easily be a truly comforting feeling. You go to work, hang out your shingle, open your doors and the crowds come rushing in to purchase all of your world famous products. They pay top dollar on their behalf and then go out singing the praises of your business and another 50 consumers come in and start the circuit all over again. This goes on right up until you close for the day. Then you lock up and get ready to start the process yet again the next day. Right?
Wrong! This may be the stereotypical version of the way it's supposed to be, but in various instances this example does not apply. The reality of the problem is exactly the opposite. Be aware that in some cases the candidates who shell out fees to buy a new business are really signing on for research and development of the concept for their own expense. These new Franchisers often have not advertised their product sufficiently to know if it will work in all parts of the country or for that matter, the world. Instead, they use the money of their franchisees to further develop the ideas.
Knowing this, how come open up an organization store in a fresh market area when ever the risk can be transferred on an unsuspecting franchisee? I say "unsuspecting" because the profile of the prospective franchisee usually shows far less experience and exposure in the field than that of an experienced self-employed operator. And after all, basically that the reason a prospective franchisee, usually with tiny experience, buys a franchise? Remember that not every franchise may be for you. Today, there are still dozens of fly-by-night franchise principles that use and out of business every year, taking many investors down with them in a flaming crash.
Starting a new Franchise. ( THE GOOD )
I used to be engaged for many years with franchise functions and problems as a VP and CEO of operation companies. I understand that franchising is a rapid and comparatively low cost way to broaden your business when compared to the amount of money, people and time that in any other case would be required to build, open and operate a chain of company-owned stores.
Restaurant owners interested in successfully broadening their business enterprise may understand that now is the time to expand nevertheless do not have the financial resources and also the management personnel to build and operate a string of company-owned stores. They should consider franchising. It can be an effective way to obtain capital to create stores and to obtain dedicated people to work those stores. Franchising provides proven itself as a successful method to expand one's organization and gain national name recognition.
A successful franchise system starts with an effective modele store. ( The Good )
The franchised business has to be profitable, have a name which can be registered as a figure, and have business operating systems which may be taught to a fresh franchisee. A new franchiser must have enough capital to start a franchising program. Prior to selling or maybe offering to sell a business, a franchiser must make a comprehensive franchise agreement and register a franchise giving circular. The federal and state franchise laws regulate the pre-sale disclosure details to prospective franchisees. A franchiser must understand the particular ongoing franchise relationship, select experienced franchisees, and develop strong, long-term human relationships together with the franchisees.
The initial franchise fee is an one-time fee recharged to new franchisees to generate the franchise, and it can range from $10, 000 and up. The ongoing royalty charge is based upon a percentage of the gross sales of each franchise location. The franchise charge, royalty fees, plus the sale of products to franchisees are typical ways by which a franchiser makes money. Though the amount of these fees runs widely, a $25, 1000 franchise fee and a 6% royalty would be fairly typical. A franchiser can certainly also provide a money savings for those stores, including the company-owned stores, through volume special discounts from suppliers of equipment, inventory, services and advertising and marketing.
To undertake the legalities of a new franchise, you need an operation lawyer and a restaurant consultant knowledgeable in franchising. Your franchise attorney might write the franchise contract, draft and sign-up the business offering round, enroll the franchise sales people and advertising, review the real estate leases, prepare any necessary commercial documents, and also have the cable connections with all the business services necessary for you the fledgling franchiser to get started. The Restaurant Advisor can assist with operation manuals, schooling programs, advertising and public relations materials, franchise recruitment courses, business plans and connection programs which are required by your State's franchising specialist. This kind of specialist can also assist in boosting your original operation into a clean functioning multi-unit organization.
Franchisee problems (The Bad)
As franchising has blossomed so have the problems between the operators and the franchiser. Over the years a host of franchisee advisory groupings and franchise councils had been shaped by franchisers to find out what franchisees want and need through the franchiser in order to increase and prosper. State and Federal regulations, enacted start at the end of the 1970's, more tightly controlled franchising and tended to benefit the franchisee. The 1979 Government Franchise Work reflects the modern tendencies in any way levels of federal government for tighter control of what franchisers can say and do and with set up techniques intended for the security of dispenses regarding terminations, renewals, added franchises and promises resistant to the franchiser. Even so there are often serious drawbacks.
A real Franchisee Problem (The Ugly)
This is a case in point - My service, GEC Consultants, Inc., was called in to help a franchisee of a small measured but well known 50's cheese burger concept. The client's trouble was diagnosed as not having enough of the proper items to make it in Chicago, il 's diner market. GEC suggested five new items that were then placed in the procedure and for twenty-two days, they sold incredibly well. The franchisee then produced a fateful error. He didn't inform the operation Company of his intentions. This was a violation of his contract. As a result, the Company threatened legal action in the event he did not remove these items. Subsequently, the items were taken out. A short time later, the franchisee made a request to once again put these things back on his menu and permission was denied. Without the ability to alter the menu to help him or her self, the franchisee eventually was compelled to give his product back to the franchiser to get very little compensation. The Company gone ahead and began to operate this unit as its own. Shortly thereafter, a story came out in an industry publication proclaiming that this franchise was rolling out "new" menu things throughout all its retailers and that their reception had been fantastic. We were holding basically GEC's recommended menu changes.
In this article was a case where operators were resourceful enough to determine problems with the stability with their franchise vehicle, and found solutions to their problem but were restricted from using them, relating to their franchise agreement, and so they ended up solving a problem pertaining to the parent company unit-wide. When this happens, a franchisee almost never receives settlement nor virtually any credit for aiding in the answer. They may even shed their franchise. It's a little win proposition.
This case signifies that the Franchise Company got always known about the weaknesses in it's menu. The fact that it was hurting their franchisees didn't seem to bother the business. Why should that? They let GEC's client pay for the marketing research and development of the new dishes. After restricting the franchisee's ability to use these new menu items successfully, they simply went in, picked up the parts, and then did all the things that they wouldn't let him do. The outcome was extremely profitable meant for the franchiser.
Sadly, you can't say the same for the poor franchisee. After paying good money to purchase what he experienced was a fully developed idea, he got instead a fragile sister idea. After the franchisee hired specialists to help recovery their sinking ship, the parent company hid most the life preservers from them. That they rescued themselves and removed their franchisee (our customer ) like some older tattered pair of pants. This hardly seems fair.
The morale of this story scans like something out of Business Regulation 101. Caveat Emptor let the buyer beware! When you go out shopping for franchises you had better bring along an expert or you may be ordering nothing but trouble and having to pay your money to further the development of someone else's company.