If you have been wondering are franchises a good investment, you are at the right place. We will outline a few facts that investors in this type of business must know.
This type of business has its own particularities, so it is good to be well prepared before deciding if buying a franchise is a good investment choice.
Franchising is highly developed in the United States and Canada, and a high percentage of all businesses presented on the market are franchised ones. So all entrepreneurs who are interested in this type of business must be aware are franchises a good investment.
Are Franchises a Good Investment
Yes, franchises are a good investment because the franchise owner gets a proven business model and franchisor operation manual with all guidance about how to run a successful business.
By buying a franchise, owners get a turnkey business and franchisor assistance in every segment of everyday business operations. This assistance will be especially beneficial for investors who have never before run a business.
Also, the franchisor (Trademark owner) has been presented on the market for a long time, which means the brand is already well known among potential customers/clients. Franchises are a good investment because the risk of failure is reduced to the minimum, but that doesn’t mean that franchised businesses can’t fail.
The franchising company has already made the most mistakes, and they learned from it their lessons. Franchisors share their knowledge with franchise owners, which reflects in the lower failure rate of the franchised business in comparison to the independent one.
By buying a franchise, owners get a turnkey business, and they can use franchisor operational manuals. It means that investors are doing business according to a well-developed business plan.
However, franchising has its own risk, and all entrepreneurs who are wondering are franchises a good investment must be aware of that. The most significant assignment for every potential franchise owner will be to choose the right franchisor.
Every franchising concept has its advantages and disadvantages, so the investor must choose wisely to ensure that they will get all they need to have a sustainable and profitable business.
For all newbie investors in franchising, the wise will be to hire a franchise advisor who can assist in choosing the ideal franchise concept.
Why Franchises Are a Good Investment
For all investors who are still not sure are franchises a good investment, we will dive more into this topic, and show what franchising can offer to entrepreneurs.
By buying a franchise investor, get the proven business concept.
Franchising is so widespread among investors because entrepreneurs get business already well established in every segment by buying franchises. It means that the owner’s only task is to work according to the guidelines, that is, according to the business concept that the franchisor has.
Entrepreneurs who are starting independent businesses are starting from zero. There is a lot of uncertainty and struggle when starting from scratch, so there is no wonder that 20% of all independent companies fail in the first year.
According to Fortunly, the main reason small businesses fail is that there is no need for their services. By buying a franchise, an investor can be sure that this will not happen to him, which is the most significant advantage of franchising.
Franchises are a good investment because, by reading Franchise Disclosure Document, potential investors can get an insight on what they can expect even before opening day, that is, how much profit or gross sales per year they can make.
If the franchisor’s business concept is good, the owner will not have too much stress in the first year after starting, and because of that, franchising is today more popular than ever.
Franchise owners can benefit from established brand recognition.
When we hear Mcdonald’s, Burger King, Taco Bell, etc., we are all familiar with these brands and what they represent. By buying a franchise, investors get a business name that is already well known among potential customers.
Suppose an entrepreneur today opens a franchised business under the trademarks of some famous company. In that case, it can expect that his facility will be full of customers/clients on an opening day.
If no one knows that a new company is on the market, all your business efforts are in vain. So when we talk about are franchises a good investment, investors must bear in mind that brand recognition will bring higher gross revenues per year, which will result in more profitability.
Franchises are less risky than independent businesses.
Although there has not been conducted a throughout research about how much percentage of franchised businesses fail, the certain fact is that if the investor chooses the right franchisor, then franchising is less risky than an independent business.
When an entrepreneur starts an independent business, there will be needed to do a lot of work to get on the same level that franchise owners have. Because of that, franchising is considered less risky, but that doesn’t mean that owner of the franchised business doesn’t need to take care of his business.
If the entrepreneur neglects his franchise, then it is a high possibility that his business will fail at some point, so although franchises are a good investment choice, that doesn’t mean that they are a passive income source.
All investors must be aware that less risk doesn’t mean no risk, so if you consider investing in a franchise, you must be ready to work hard every day. If there is consistency, the initial investment can evolve into a sustainable business that will bring profit in many years upfront.
Franchise buyer gets franchisor business assistance.
We must mention that investors, by buying a franchise, have the right to the franchisor’s business support 24/7, 365 days a year. So, if the franchisee experiences some issues or problems, it is possible to reach out to the owner of the trademarks and search for his help.
Usually, there is online or telephone assistance for minor issues, and if the investors have some more significant business problems, then the franchisor sends its representative to the franchise location. So when we talk about are franchises a good investment, we must outline that investors are not alone in their business journey.
The franchisor representative/agent goes on the field only if the franchisee has some massive business issues. It means that investors can send an ”SOS” call to the franchisor, and usually, that will result in resolving problems or misunderstandings that the owner of the franchise has.
Also, we must mention that before opening day, the manager of the franchise and employees go through so-called ”initial training”. This training and later franchisor assistance in resolving issues is the major component of franchises’ success.
All entrepreneurs who want to own a franchise must know that this business assistance is not free. For it, the investor must pay a so-called ”Royalty Fee”, which means that from gross sales that franchised businesses make, a certain percentage from it will go to the franchisor bank account every month.
Supply materials are more affordable.
Franchising companies usually buy from manufacturers’ supply and raw materials directly and in bulk, which means they pay less price for it. From this fact, franchise owners can have some benefits because their everyday supplies are usually purchased directly from the franchisor or its affiliates.
Because franchised businesses have good margins from the manufacturers, independent companies can’t compare with them by the competitiveness on the market!
A good franchisor will offer raw materials/supplies to their franchised units at a lower price. This practice will be reflected on the franchise owners in a good manner because more profit at the end of the month will stay in their pockets. After all, good profitability is what makes franchises a good investment.
But, all potential buyers of the franchises must be aware that some franchising companies want to squeeze as much they can profit from their franchisees. And because of that, they charge supplies/raw materials more expensive than they can be found in the open market.
It is crucial to choose the right franchisor who will be a serviceable business partner. Before they sign the Franchise Agreement, all investors must contact former or existing franchisees and find out from the first hand whether the franchisor offers supplies at a fair price to its franchise owners.
We have outlined only a few reasons why franchises are a good investment. Franchising is much more than we can mention in one text, so it is wise to learn more about how franchising works.
But, investors must be aware that if they do not find the right franchisor, the franchise can fail, which can be expensive. So before deciding in which franchising concept to invest it is necessary to take time and research all about it.