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Is Franchising Right for You?
Perhaps one of the most famous franchises around the world is McDonald's, which offers a ready-made brand, but there are also accommodation franchises with similar reach and opportunity. Investing in a franchise often means that you get instant brand recognition without having to build it up over a number of years, and you also have access to a wide range of services and advertising that you wouldn't if you were an independent business owner. As a result, the franchise model offers numerous advantages to a business.
The type of franchise you choose often depends on your start-up capital. Even if the business offers substantial opportunities, you must be able to afford it to begin with, and you'll be expected to hit the ground running. You need enough money to buy the business and keep it running for the first year until profits can start sustaining it. Not having enough capital is one of the biggest reasons why businesses fail, and a franchise can be particularly difficult to run without capital due to the required standards that might come with the brand.
Depending on which market you choose to enter, the stability of a franchise can be a double-edged sword. On the one hand, it reduces the likelihood that your business will collapse in the first year. However, you might pay for stability; a lower buy-in price can mean more risk.
A motel franchise with a leasehold that only has a few years left might be considered a risk, but if you can successfully negotiate extra years or a whole new lease, you can increase the capital value of the business substantially. However, a business franchise that has 20 years left on its lease is likely to be priced accordingly.
Choosing the right franchise often means matching your budget to the right plan, but you also need to consider your own personality. Many hotel franchises require a specific look and even a specific style of management from the businesses within the brand. Finding one that matches your own needs helps increase the chance of success.
How Does It Work?
Franchises make money in three main ways:
- Advertising fee
You approach the franchise and discuss your options. The technical adviser looks at you, your experience and your financial plan and makes a decision as to whether the franchise wants to be associated with you. Acceptance into a franchise also depends on whether it can support another franchisee, a decision which includes evaluations of both geographic and resource factors.
If you are accepted as a franchisee, you may go through training. With some (typically non-accommodation) franchises, this can take as long as a year and requires significant outlay. With others, the training is shorter, with some taking as little as a couple of weeks to get started. Some brands offer additional regional workshops and on-site training for continued growth.
Training often includes a variety of standardized systems that the motel or hotel franchise uses to deliver a reliable experience for guests. It may set out how to train staff and what you need to run the franchise. In some cases, equipment may be bought through the franchise, though some brands let you purchase things independently.
Royalties are assessed by franchises as a proportion of profits. In the accommodation sector, you can expect royalties between 4 and 6 percent of takings. This ensures that the franchise can operate and maintain its support systems and provide regular advice as needed. Royalties also help fund new projects.
The advertising fee can be as little as 3 percent or as much as 5 percent. This fee reflects the costs of advertising the entire franchise and ensuring that you have regular visitors.
Ultimately, a franchise can be a worthwhile investment if you are willing to put the time into it and have the financial ability to make it work. In many cases, a good franchise can be worth significantly more than an identical hotel in the same place that doesn't have the same name.
For further information about this article, contact your nearest LINK Business Broking office at: