The odds are pretty good that at some point just this week you’ve made use of a franchise. Some franchises are well-known and there are others that consumers assume are localized small business.
The history of franchises dates all the way back to the Middle Ages when different factions of the European government provided citizens with the right to do things like collect taxes on market stalls, land, and toll bridges. The tax collectors paid the government a royalty and kept the rest of their collections.
The trend continued when European settlers came to what would become the USA. A select few collected taxes. They collectors sent a royalty back to the British Parliament and kept the rest for themselves.
Franchises really became a mainstay of the American business landscape at the start of the 1900’s when Henry Ford relied on them to help sell his famous Model T automobiles.
It seems like every single day, a successful business person decides that they want to turn their business into a franchise. When this happens, the business person becomes a franchisor and everyone who takes advantage of the opportunity to invest in their franchise is a franchisee.
Some of the top franchises in the United States going into 2019 were:
- The UPS Store
- Dunkin’ Donuts
- The UPS Store
Finding Different Types of Franchise Opportunities
Franchise opportunities exist in nearly every single industry. You just have to know how to find them. One of the best places to start exploring possible franchise opportunities is checking out MarketWatch Junkluggers’s franchise list. It is one of the best sources of franchise opportunities around.
It’s worth noting that there are 3 very different types of franchises. The types are:
- Business Format Franchise-The franchisee owns their own location, but agrees to operate it under the franchisor’s registered name and sticks to a strict business plan the franchisor created
- Product Distribution Franchise-A business owner enters an agreement with a franchisor that allows the franchisee to sell the franchisor’s product.
- Trade Name Franchise-The franchisee pays a royalty in exchange for using the franchisor’s name, even though franchisee uses their own marketing plan and doesn’t necessarily sell the same products/services
More than ¾ of all franchise opportunities are for business format style franchises.
Investing in Franchises
Once you’ve selected three or four franchise opportunities you think sound exciting, it’s time to look at the financial aspect of taking advantage of the franchise opportunity. All franchises require an initial fee, though the amount of the fee varies from one franchise to the next. In addition to the initial franchise fee, once your location is up and running, the franchisor will expect you to pay them royalties on the income your location generates.
One mistake many people make is assuming that the franchise fee is all that’s needed to get them set up with a great franchise opportunity. That’s not the case at all. Additional costs you need to take into account include:
- Legal fees
- Building fees
- Local permits/licenses
- The cost of initial inventory
Ideally, you should look for a franchisor that’s willing to help out with financing. Their willingness to help indicates that they’re going to be supportive during your franchise adventure, and that they really believe in you.
While the cost of taking advantage of becoming involved in a franchise seems high, it’s worth noting that a successful, well-run, well-marketed location can potentially provides an annual return of about 15%.
Have you come across any promising franchise opportunities lately? Are you considering taking the leap and becoming a franchisee? If so, what aspect of becoming a part of a franchise do you find the most appealing?