Franchise business models come in different formats. Understanding your own goals, strengths & weaknesses and investment capability can help you pick a business that is the best fit.
Starting a business is a great decision. More and more people are realizing that there’s more to life than working a 9-5 job.
There are more than 30 million small businesses in the U.S., and 1.5 million of them started in the last few years.
Even though there’s a lot of uncertainty now, it’s still a great time to think about how to start your own business. Franchising offers a way to start a business that’s secure and gives you support.
You’ll want to research franchises for sale and learn about the different types of franchises.
Keep reading to learn the three types of franchises and learn more about picking the right franchise for you.
Types of Franchises
As you start looking at franchises, you’ll notice that they fall into a few main categories: business format, product, and manufacturing.
We’ll take a look at each type of franchise.
Business Format Franchise
This is by far the most common type of franchise. This is where you are basically buying a business system. You’re licensing the right to use the associated trademarks, branding, and other intellectual property of the franchisor.
You get a playbook of manuals and operating procedures that you agree to follow. Any changes to the system must be agreed upon by the franchisor.
The reason why franchises are successful is that they deliver the same experience to customers across the world. The coffee you taste in New Jersey is going to be the same in Seattle.
The way the brand is presented is the same, too. The colors, logos, and marketing materials are all uniform. Customers respond to that consistency, which is why it’s common to see companies with a uniform brand have more revenue.
Examples of a business format franchise are McDonald’s, Starbucks, Dunkin Donuts.
Coca-Cola has franchisees that agree to create, bottle, and distribute its secret syrup formula. These bottlers agree to only produce Coca-Cola products, not Pepsi.
That is the perfect example of what a manufacturing franchise looks like.
A product franchise is seen as a more traditional franchise. That’s because this type of franchise was created before the business model franchise.
In this type of franchise, you have a specific brand or product to sell. You have a lot more leeway as to how the product is sold.
A great example of a product franchise is just about any car dealership. The way one car dealership is different from the next, but they license the right to sell certain manufacturer’s cars.
This model is usually in the form of an exclusive distribution agreement, where a seller agrees to only sell from one manufacturer. These agreements usually require franchisees to order a certain number of products each month.
This is often confused with a supplier type of relationship. The difference between the product franchise is exclusivity.
Which Type of Franchise Is Right for You?
Now that you have a better understanding of the types of franchises, you can move on to learn if franchising is right for you and how you can find the best franchises for sale.
The first thing that you have to do is to assess your personality. Do you prefer to have systems laid out in front of you?
If so, you’d do well with a business format model. This is usually a good starting point for people who don’t have a lot of business experience.
You’re given all of the tools that you need to start and run a successful business. You don’t even have to go to business school for that.
If you’re an independent person, you probably won’t enjoy a business format franchise. You’re constantly being told what to do and how to do it.
You’re likely to find that you’ll do much better under a product franchise model. Keep in mind that you should have a lot of business and marketing knowledge under your belt. Remember, you’re probably going to be required to sell a certain amount of products each month.
A manufacturing model is intriguing, but you would need access to a manufacturing plant to produce the products.
How to Choose the Right Franchise
Once you narrow down your choices to the type of franchise, you can start looking at your options and chose the right franchise to start your business.
Finding Franchises for Sale
The great thing about franchises is that you can start one in an industry where you have little to no experience. You put up the capital and then have someone else manage the daily operations of the business.
The place to start looking for franchises for sale will be online. Google is a great place to learn about the different franchises available in a particular industry.
You can search for franchises that have a lower franchise fee, too. Start to take notes on the various franchises that you come across.
Researching the Companies
You have to find out if a franchise is a good fit for you and a good fit for the franchisor. You want to gather as much information as you can.
You’ll find that a lot of franchises are publicly traded companies. Publicly traded companies are required by law to provide quarterly and annual reports to shareholders. Those reports are also available to the public to inform potential investors about the opportunities and risks before they invest in a business.
These documents can be a gold mine for you as you find franchises for sale. You’ll find out how healthy a company is and how much cash they have on hand.
These are important documents to learn to read and they can prevent you from investing in a sinking ship.
Another way to determine if a franchise is right for you is to interview franchisees. You may be able to get one to be a mentor as you navigate your new business.
Franchisees offer amazing and honest insights into what it’s really like to work with corporate. You want to ask them about the lessons learned, mistakes made, and how they operate their business.
Coaching and Support
If you’re planning on starting a franchise, you want to know what kind of support you can expect to see from corporate. This may also depend on the type of franchise.
A product franchise may give you limited training on product knowledge, but that’s it. You’re largely responsible for everything else.
A business format franchise is more likely to provide ongoing support. This mosquito franchise has a one-on-one coaching program to help franchisees be successful.
Understand All Franchising Fees
You’re probably aware of the franchise fee to start a business. All a franchise fee does is get your foot in the door. There are a number of startup and ongoing costs that you have to be aware of.
For example, you may have to purchase equipment, which is common for fitness franchises. You may have to find a retail space for your business, advertising costs, and training fees.
On top of that, franchises will require a monthly royalty fee, which is a percentage of your sales.
Finding Financing for Your New Business
Your finances are going to be a determining factor in the type of franchise you start, too.
Some franchises require that you have a certain amount of money in the bank. They want to see that you’re able and financially committed to starting a new business.
You can go out and find financing for your new business if the start-up costs are too great. In many cases, they can balloon up to several million dollars before you open your doors.
There are a few ways you can get financing for your business. One way is to get a group of partners together to invest in the opportunity.
Another way is to find people who just want to invest without a partnership or a stake in the company.
Getting a loan to start your business is another option. You have to make sure that your finances are strong and you have good credit. You need to have a business plan in hand to show lenders how you plan to make money.
Start Your Dream Business With Franchising
There are thousands of franchises for sale that you can leverage into a new business. How you decide which franchise is right for you starts by knowing the types of franchises.
You can then figure out what type of franchise suits your working style, experience, and personality. Then you can start the long process to find the perfect franchise and get the financing you need to get it off the ground.