Updated on April 24, 2020
How to create a franchise? Why not create your own business?
Everyone with an entrepreneurial spirit dreams of having their own business, but data shows that 80% of new businesses created by young entrepreneurs fail in the first year. This is because entrepreneurs do not have the necessary training to run a business. Hence the failures. So… Why create a franchise?
If you want to develop a business and open your own business, establishing a franchise may be the solution to your entrepreneurial ambition. Why? Because you have all the technical and strategic knowledge of the franchisor as a basis and he is responsible for communicating it to you, this is what is known at the business level as Know-how. Furthermore, you will have the use of a common name or signature or other intellectual or industrial property rights and a uniform presentation of the locations or means of transport which are the object of the contract.
Statistics show that under the franchise model, the number of franchised establishments has increased by 5.5% and employment by 3.7%. The advantages of the model are undoubted. If you want to continue to be informed, here we tell you everything you should take into account to do so in the best way, knowing the advantages and disadvantages of this business formula:
The advantages of creating a franchise
- Proven successful and profitable business model. This is one of the advantages of a franchise, while if you set up a business on your own, you have to start from scratch, choosing the commercial offer, looking for trial and error with the products/services, knowing your target audience, areas of greater reach for the selected model, etc. Therefore, the risk of doing business with a franchise is lower than when you start it yourself, because you enjoy the experience, support and brand image of the franchisor.
- Banks tend to be more flexible in financing projects with proven success and profitability. In this case, MundoFranquicia currently has agreements with financial institutions to create a franchise, which makes it much easier to obtain financing than if you created your own business.
- When you are part of a consolidated franchise, the franchisor, thanks to the Know/How, gives an initial training and continuous advice to the franchisee to know perfectly the management of the business. Franchisees’ profiles are varied and they always need to complete their skills and qualifications through a process of continuous training to know how to manage a team, handle suppliers, etc.
- The brand knowledge created in the years of operation of the franchise is an added value that the franchisee has when competing against other brands and finds customers just to start, thanks to the trust generated by the brand.
- The most critical moment when opening a business model is the choice of the opening location. The franchisor, with his extensive experience in the profile of the target customer, can help the franchisee to find the best place to open, and thus prevent the business from failing at the first sign of change.
- The franchisor constantly works on innovation, creation and design of new products/services, this makes the franchisee dedicated only to exploring his business without the need to invest that time if he sets it up alone.
Disadvantages of belonging to a franchisee network
- Loss of independence: One of the biggest obstacles you will encounter when opening your own franchise will be the loss of independence. Therefore, your ability to act within your own business will be conditioned by the previous contract you will have signed with the franchisor. This does not lead to the following inconvenience.
- Limited margin of action: as we have been saying, the main decisions in matters of great weight in the strategies are made by the franchisor and you have to adapt to the methods and processes established in the franchising contract.
- Initial investment: the future franchisee will have to pay the entry fee and royalties in order to use the franchise. But you will never own the brand.
- Your business success is related to the franchise network: just as you will have the prestige and brand image to start the business, if the franchisor and the other establishments in the franchise network fall, you too will fall. This is the so-called “domino effect”.
We always recommend that, before starting a business, you study your profile to see which business best suits your professional characteristics, as many models fail due to a lack of knowledge and a lack of management of the franchisee. That is why it is good to have the support of a franchise consultant to advise you on the best option for your profile.