Why Buy a Franchise?
First, we must understand, “what is a franchise?”
A person can either open a “no name” business or open a McDonalds, AAMCO, Great Clips, KFC or any big name franchise business. The question is, “Which has the better chance of success?”
Franchising is when someone like a Ray Kroc (McDonalds founder) takes a successful business, perfects and then duplicates it. They award to clients the right to use their name and their system. Usually both parties sign long term contracts where the franchisor promises to help their new franchisee become successful.
No name store
The new franchisee promises to follow the franchisers proven system. The franchisor gets a small royalty and is really only successful if the franchisee is successful.
As stated in the book, The E Myth Revisited “The success of the Business Format Franchise is without question the most important news in business. Over the course of one year, Business Format Franchises have reported a success rate of 95 percent in contrast to the 50 plus-percent failure rate of new independently owned businesses. Where 80 percent of all businesses fail in the first five years, 75 percent of all Business Format Franchises succeed!”
Power of a name
Your chances go up
There is a very good reason why someone would buy a franchise over starting a business on their own? To have help in marketing, training employees, salesmanship, accounting, advertising, buying the right product and having on-going support, there is no doubt why franchises are so successful. Usually the buying power provided by a franchise company makes up for most of the royalty the franchisee pays the franchisor.
The goal of the franchisor is to make the franchisee wealthy and very successful. If they can make the franchisee a millionaire, they will get a higher royalty and both parties win.
A person can start their own business and try to learn everything from scratch, or they can buy a franchise and have a system already laid out for themselves. They can start something on their own and have an 80% chance of going out of business and losing all of their investment or have a great chance of being successful, building equity and a great income. Let me ask you, which is the smarter move?
Evaluate the profit potential VS the risk you have to take. There is “no doubt” when you start an independent business, it is reported you have a 50% chance of being closed in one year. That is NOT a good investment.
It has been reported that total sales by franchised businesses are projected to reach over $2.2 trillion this year. One out of every eight businesses is a franchised business. A new franchised business is opened every 8 minutes of every business day. Franchises account for 42% of all retail sales, a number expected to grow to 50% in the next decade.
Why is franchising so popular? “Because with the hand holding and help of the franchisor a person has the best chance of success.”