by Andre Sanchez

If you are interested in investing in a franchise, knowledge of the basics of franchises will be of use in helping you to come to the best decision based upon your own abilities and needs. 

If you purchase a franchise, you are buying licensed rights to carry out the business according to the franchisor’s standard methods and received continual support in doing so. A MacDonald’s franchise is a prime example of how a franchisee runs a business in the standard way, purchasing the raw material from the franchisor and using the company logo and benefiting from national advertising campaigns.

The franchisor also provides the training and advantages that come from a national corporate body with the ability back up the franchisee in every respect of their business. This is a symbiotic relationship that benefits both partners, and while one supplies the know-how and corporate backing, the other supplies the workforce and investment.

There are a number of types of different franchises, of which the following are the
most common:

In a retail franchise, the franchisee finances the commercial property, equipment and staff required to run the outlet.  Owners of retail franchises tend to operate them themselves, and hire staff only where necessary.  Examples are well known hi-fi stores, and perfumery and fashion outlets.  Many of the well known High Street names seen in most towns and cities are franchises. These can be sold on when they come profitable in order that the franchisee has the capital to move on to larger outlets or multiple franchises.

A servicing franchising is also very common.  An example are plumbers who pays for franchising and training in plumbing, then are allowed to start their own business using the corporate name and logo. Advertising is provided by the company, and the plumbers can either work by themselves, or employ a staff to build up their own businesses.

A management franchise is a system whereby you manage a team of employees that cover a number of areas, such as a distribution and delivery system of trucks that cover a number of states or even the whole country. 

Then you have what is called the executive franchise, who could be a financial advisor purchasing a franchise in well known financial company, and offering the companies products. Examples are loan companies, insurance agencies and personnel or staff agencies.

The multinational hotel franchises are frequently run by investment franchisees, who invest considerable amounts of money into the development of hotels then hire other people to manage them. Apart from hotels, this type of investment franchising occurs in well known national restaurant chains and some of the larger retail outlets.

As your franchise develops, the opportunity frequently occurs for you to expand, and you might switch from a retail franchise to a management or even investment franchise.  The ultimate objective of anybody is to do as well as they can to develop their business, and franchising provides you with many benefits in that respect.

One of these is market research.  One of the major mistakes made by independent entrepreneurs is to fail to carry out adequate market research before starting up their business. They do not make sure that there is sufficient demand in a locality to sustain business over a period of time.

Take a TV repair company for example.  Once you have repaired all the TVs in the locality of a small town, you are out of customers and your business must fail. On the other hand, a newsagent franchise might just work if competition is light. 

With a franchise, the market research is carried out by the franchisor before they offer a new outlet.  A good one will also provide you with details of the competition and how to stand out above them. You also benefit from the ability of a franchise to bulk purchase.  This makes purchase of supplies, materials and services much cheaper, and your share of advertising costs is also low. A franchise can frequently outsell the competition on price due to these benefits that smaller independent units do not enjoy.

Sure, it can be hard work.  Perhaps you and your partner will be putting all your time into your new franchise, but if your franchisor is a reputable one, most of the important work has been done.  You don’t have to worry about where the customers are coming from or where to get the best prices for your supplies.  All of this has been dealt with for you. 

You have to dedicate money, time and effort into your franchise, but you should be secure in the knowledge that most franchises work and provide the franchisee with a good living and a growing business. If you feel that this could be for you, then learn the basics of franchises then make the decision that suits you best.

The Basics of Franchises  was originally published at http://www.businessmannow.com