Franchisees Section

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Purchasing a franchise could be a great opportunity to start an independent business. Nevertheless, entering a new business venture requires caution and due diligence in order to avoid a buying a ‘pig in a poke’.

The franchising method proved to be a successful method for companies and businesses. However, purchasing a franchise is actually purchasing a business. It is a transaction with various complexities which requires review and analysis before entering to.
Unfortunately, not once franchisees (like other entrepreneurs) find themselves disappointed when their business does not succeed.
When purchasing a franchise, the hope is to minimize the risks associated with opening a new business, by buying a business model which was proven to be successful and receiving training and support as part of the deal.
Part of the preparation towards purchasing a franchise, beyond the specific transaction, is the fundamental questions – does this franchise business mode fits you?

What does being a franchisee mean?
Your business will be operated according the franchisor’s business model which was proven as efficient, using existing business developed by franchisor and proved itself in the market. This way, you will save the need to “reinvent the wheel” or finding the optimal way to operate your business.
It is important to choose a franchisor which will provide you with an experienced and supporting team which will assist you in opening your business, initial training and continues support.
The expected costs when opening a franchise business are usually: one-time franchise fee (for the reputation, business accompaniment and training), royalties from the business revenue, rent and renovation of your business location and other general customary business expenses (accounting, employees salaries

What are the advantages of a franchise?
You are not alone when operating a business under a franchise, but rather a part of a network and a larger organization than a single unit business. Thus, the main advantages of joining a franchise are:
• It’s easier to raise funds for opening a business under a known and reputable organization;
• Better purchasing power – buying in larger quantities as part of a multi branch organization may decrease the prices and costs associated with the business;
• Greater exposure as part of the general franchise advertising;
• The “run-in period” of a franchise business and reaching its revenue potential is usually faster.
• As a franchisee you can concentrate on managing your own branch, while the chain is in charge on the general management of the chain, developing the brand and preserving the competitive advantage in the market.

What are the disadvantages of a franchise?
• The Franchisee is subject to the franchisors procedures and protocols;
• Establishment costs of a franchise business are usually more expensive due to payment of a franchise fee and high quality of predefined materials and equipment.
• Adverse effect on the franchise reputation due to other franchisee disfunction.

How to evaluate the Franchisor?
• Ask Background questions – ask the franchisor how many years of experience it has in the franchising field and with how many franchisees did he work with? Did the franchisor tested his method in a pilot before becoming a franchisor? If not, why?
• Costs and funding – check what is the total cost of the franchise opportunity offered, which continues expenses are expected and how much capital will you need to raise. It is important that the relevant costs and expenses presented by the franchisor in his offer and during discussions with him will appear in the franchise agreement.
• The business’ profitability – ask for a report representing the chain’s franchisees profits and the average time it takes to return the initial investment by franchisees in the chain.