How Investing in a Franchise Saves You Money

Ever dreamed of being your own boss? Since the pandemic of 2020, who hasn’t? The Great Resignation came without warning. As people quit their long-time jobs, many stayed home to work for themselves. Are you still vying for something more than the 9 to 5? Are you contemplating resigning yourself from having a boss to becoming your own boss? Maybe you should consider investing in a franchise.

What Is a Franchise?

A franchise is a form of business that allows a person to acquire a license to run an existing business themselves. Acquiring a franchise license gets you access to the business’s proprietary knowledge, trademarks, products and services, etc., all under the business’s existing name.

You likely visit franchises every day. In fact, your favorite place to go may be a franchise. With franchises growing at an amazing rate, they are everywhere. Franchises come in all shapes and sizes and are in varying industries. From restaurants to hair salons to gyms, it’s hard to visit any major city and not patronize one.

How Do Franchises Work?

The franchise business model is unique. With it, you not only become a business owner of an already well-established business, but you get instant rights to use the business’s name, business systems, and operations, and you immediately have products and services to sell.

For example, if you ever wanted to operate your own convenience store, you may want to look at brands that already have a chain of stores — 7-Eleven is a good example of one. Why try to create your 7-Eleven from scratch when you could buy into the 7-Eleven brand and have your own? That way, you get the brand (everyone already knows 7-11), the products and services that come with the store (you automatically become a gas station), and the proven system that comes with being a 7-Eleven establishment.

What Costs Are Associated With Investing in a Franchise?

While startup costs associated with starting any business can vary based on the type of business, the cost of building a business from scratch can be prohibitive over the years. How much would it cost you to build a convenience store that could compete with the likes of a 7-Eleven? I’m not sure, but since 7-Eleven has more than 13,000 stores throughout the U.S. and Canada, it would likely cost you millions, if not billions, of dollars to compete.

However, I don’t want to mislead you. Investing in a franchise is not nickels and dimes; it’s costly. There are heavy fees associated with it, and in addition to that, your ownership is limited. This means you’re obligated to certain franchise controls outlined in a well-defined contract. Here are some of the costs associated with investing in a franchise:

Franchise Fees: You could pay anywhere from tens of thousands of dollars to several hundred thousand dollars to invest in a franchise. In addition, there could be additional costs like building rent, equipment costs, insurance, etc.

Royalty Payments: Even if your business loses money, you may be obligated to pay the franchise royalty payments weekly or monthly. These fees give you the right to use the franchisor’s name.

Marketing fees: You must provide money toward promoting your business. The franchise may even play a role in helping to promote your business.

Control: The other thing franchisees have to give up that can be as valuable as money is control. Franchisors usually outline how you should conduct business with their name in the agreement. This limits your rights as an owner. In essence, the franchise may control the site for your business and the appearance of your business and restrict what you sell or how you operate.

Is Investing in a Franchise Right for You?

While investing in a franchise may be smart to save money in your startup venture, everyone may not cut out to be a franchisee. So, before you decide you’ve just found your ticket to leave the grind of the 9 to 5 forever, here are some things to consider if investing in a franchise is right for you.

Consider how much money you have to invest: Don’t only consider how much you have to invest but also how much money you can afford to lose.

Determine if you need help with financing: If you know you will need help with the financing, consider all your options, from loans, personal investments (some people use investment strategies to reach their financial goals), or even partners.

Will you invest alone or with a partner: Consider if this is something you want to do on your own or if you would like to have a partner.

Consider how much control you need in your business: If you prefer to make all the decisions for your business, investing in a franchise may not be ideal for you. As a franchisee, you give up most of that control and creativity. The business system and how the business operates already exist, so you’ll be obligated to uphold the standards already in place. If you’re not wanting to give up so much control but want a successful business, you may want to consider starting your own franchise.

Time commitment: Even though the system has already been built for the franchise you invest in, there will still need to be time commitment on your part. How much time can you commit to such a significant project? Investing in a franchise is costly, and you’ll want to make sure you give it the time commitment it needs to reap the benefits.

How To Select the Right Franchise

Not all franchises were created the same, so it’s essential to do your due diligence to determine the right franchise opportunity for you. Here are some tips to consider when choosing a franchise:

The type of business: Franchises span different industries and come in other forms. While most people are familiar with the multiple franchises in the restaurant industry, there are too many industries to choose from.

Consider your passion: Since franchises are all over the place, it would be wise to consider looking into an industry you’re passionate about. This is likely an area that you enjoy working in and have some general knowledge about.

Understand the contract: Get familiar with the franchise’s framework and how they work before finalizing anything. Get acquainted with the contract terms to know if it’s something you can commit to. Also, know the total cost commitment.

The Bottom Line

Investing in a franchise can be costly. But when compared to the automatic brand name status, access to inventory, proven business system, and operations of a business that’s ready-made versus one that you have to spend years building from scratch (most businesses fail within their first five years), it could possibly be huge savings for you. A franchise allows you to earn profit from day one, not spending years to break even.

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