One of the most popular business models for entrepreneurs today is starting a business via investing in a franchise. Franchising is a business arrangement between a franchisor and a franchisee. The franchisor, which is the original company, contractually permits the franchisee to use its trademarks, branding and business knowledge to sell products or services. Usually, the franchisee pays the upfront cost and annual licensing fees.
Ideally, if you buy a franchise, you operate under the title of a larger company. While there are many types of franchises to choose from, it’s best to pick an appropriate organization that’s profitable and meets your business goals. Therefore, as you plan to invest in your first franchise, here are four tips to help you select the right business:
1. Establish your business objectives
Every entrepreneur has different motives for starting a business. Objectives give you a purpose to take the necessary measures to achieve desirable outcomes. Therefore, before buying a franchise, it’s essential to define your goals. For example, you may aim to boost brand recognition or leverage the available growth opportunities and make a considerable profit. As such, you’ll choose a reputable organization that demonstrates large profit margins to be the face of your brand to enable you to achieve this objective.
2. Determine the industry you want to conduct business in
There are different product lines and service categories you can choose to operate a franchise. That includes sports, fitness, cleaning services, restaurants, health and wellness or retail services. Even so, it’s vital to conduct extensive market research to determine the markets with excellent opportunities.
You can leverage free online resources or opt for paid market data in online databases to analyse various performance metrics. Alternatively, you can consult existing or previous franchise owners. The professionals can provide insight on vital aspects such as the lucrative businesses to consider, the reputable franchisors to partner with or the pitfalls to avoid.
Afterwards, you can narrow your choices to the franchise systems that meet your skill set and interest you the most. Ideally, to experience professional fulfillment, the organization you choose must align with your values and beliefs. For example, if you’re passionate about sports and helping children, you’d want to consider a childhood development and soccer-focused business for sale. You can start and run a business that combines infant development, sports coaching, and fitness.
According to statistics, there were about 2,569,900 actively trading companies in Australia as of June 2022. Also, between 2021 and 2022, there was a 7% growth in the number of businesses, a 19.7% entry rate, and a 12.7% exit rate. Therefore, it’s one of the strongest markets globally for business growth.
3. Consider your investment budget
Understanding all the costs involved in purchasing your first franchise is vital. You’ll have to pay an initial start-up fee to start and run the business and a licensing fee which gives you the rights to use the franchisor’s name and brand. These start-up costs differ by industry or business category. For instance, you may incur higher costs to invest in a food franchise than a home-based franchise because you’ll spend more on inventory and equipment.
Therefore, weigh your financial capacity and choose franchise opportunities that suit your budget. Generally, you may require a significant amount of initial capital to invest in highly-profitable businesses. In that case, if you’re short of money, you can consider applying for a loan from lenders specialising in franchising.
Notably, you can achieve brand recognition, convert more leads and get substantial investment returns with the right franchisor. A recent study shows that franchise owners have an average annual income of about AUD$ 112,975.35. Top franchises can earn above AUD$352,999.23 per year. However, note that franchises are long-term investments, and it might take long before you start generating consistent profit. So, ensure you have adequate cash to live off as the business peaks.
4. Identify your role in the business
The following are some types of franchises based on how involved you’ll be in the daily business operations:
- Owner-operator: You’re directly involved daily in delivering the company’s products and services.
- Semi-absentee owner: You’re not required to commit to working full-time. You can set aside specific hours invested in the business, say 10-15 hours a week.
- Absentee owner: You employ workers to assist with daily operations and an owner or operator to run the business actively.
Therefore, you’d want to find a franchise that fits the role you want to play in the business. Even so, remember most franchisors require franchise owners to dedicate their time and effort to the company, especially in the early stages. Ideally, only a few may provide the option of being an absentee owner. So, if you have many commitments, like another full-time job and are looking to be an absentee owner, you may miss out on many franchise opportunities.
With a franchise, you benefit from an established brand and product while being your own boss. Therefore, the above are some guidelines for choosing the right organization. Also, as stated earlier, owning and running a franchise is a long-term commitment. For that reason, ensure the type of organization you choose suits your future interests.