Who buys franchises and why should I buy one?
Most franchise owners decide on this path because they wanted a proven, successful system to follow. These owners held systems and processes, proven results, and a support team in high regards. Also, many owners who have changed career paths and lacked experience in their new industry have found that a franchise gives them a 'jump start'.
What does the franchise buyer look like?
A study conducted by the International Franchise Association pinpointed the typical franchise buyer. Franchise buyers come from all walks of life, education and economic backgrounds, although some typical traits are as follows:
- Between 35 and 55 years old
- Corporate Management background
- Income average 80k to 150k
- Net worth of between 300k to 800k
- Majority have IRA / 401K retirements plans
- Men, couples, and women (in that order)
- Most have never owned a business
- Want to build a business that will allow them to retire
- Looking for ongoing marketing, training, and support
What is franchising?
The term Franchise is part of our daily language but what does it really mean? It is a right or license granted by a Franchise Company to a business. This allows the business to use the Company’s name to sell its products or services in exchange for an initial franchise fee and ongoing royalties. Franchise Companies invest hundreds of thousands of dollars in some cases to develop a strategy to gain huge market share! Although Franchise Companies account for approximately, only 10-12% of all retail and service business they receive almost 50% of the retail and service dollars spent in the United States annually. Currently, franchise companies have sales of over $1 trillion, 500 billion and growing!
Why should I pay royalties?
Royalties are the magic that makes the formula work. What would it cost you to hire a management, marketing, training and customer support team? The answer is a lot more than a typical owner would ever spend! The vast majority of royalties are only between 4% and 8%. A franchisor provides you with ongoing knowledge, assistance, and support so you can reach your financial goals. So the nominal royalty fee is worth it!
What are the fees associated with buying a franchise?
There are a number of fees associated with a buying a franchise. The initial franchise fee gives you the ownership of your franchise location and includes training and support. Royalty fees are paid ongoing, typically on a monthly basis, as a percentage of revenue. There may also be other cost sharing expenses including a national marketing fund and technology fees.
Do I have to have all of the cash up front?
There are a number of financing options for purchasing a franchise including SBA loans, direct financing from Franchise companies, third party financing, and retirement plan financing. Buyers should take into account the total turnkey cost of the franchise when determining how much financing they will need. This cost includes the franchise fee, start-up expenses and the initial working capital (at least six months).
Do I need to use a consultant?
While you do not need to use a Franchise Consultant, it is highly recommended. Franchise companies pay consultants to be the Buyer’s advocate. We are here to help you determine the right business for you and help you understand all of the process steps and documents, including the FDD. Our services are always complimentary to buyers.
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