A lot of entrepreneurs prefer to buy a franchise rather than start their own new business. The reason for this is that the risks involved in running
a franchise are much more measured than the risks of staring a
new business. However, there are no guarantees in business.
While establishing a new business
may give an entrepreneur more
creative freedom it also requires more
capital resources and more planning. Entrepreneurs need to detail fairly
easy on their advertising and marketing campaigns.
Franchising provides an entrepreneur
with a proven system and the support of a much larger organization. An
entrepreneur of a franchise needs to spend less time on advertising and
Another advantage of being a franchisee is that the
entrepreneur gets technical support all the way. As part of a franchise
system, an entrepreneur can count
on the efforts of other franchisees to compliment marketing programs.
There are several costs involved in setting up a franchise and an
entrepreneur needs to consider all of them before signing up to be franchisee.
The first consideration that an entrepreneur
needs to make is that the initial franchise fee is usually non-refundable. This
can amount to several thousand dollars.
In addition, establishment costs of a franchise are high. The establishment costs
are very comparable to the entrepreneur
setting up a new business.
These costs include rent and hiring costs.
Just as a new business
owner needs to decide between owning an office space and renting out a space, so
too does a franchise owner. The owner needs to decide if he or she wants to rent
out commercial property, own it or rent out a small kiosk in a mall.
Again just as the owner of a new
business would, the franchise owner also needs to come up with a business
plan complete with financial goals and targets. This is not only to
raise capital from business investors but also to get the franchise.
An entrepreneur of a franchise
may also need to pay the franchisor royalties based on a percentage of weekly or
monthly gross income. An entrepreneur
is expected to make these payments even if the monthly or weekly earnings are not
Finally, an entrepreneur needs
to pay into an advertising fund. Some portion of the advertising fees may go for
national advertising or to attract new franchise owners.