Everyone knows that a business is the best way to make a great deal of money, or one of the best ways at least. However, sometimes it can seem very daunting to do so, and it can even be almost impossible without enough capital to make it happen. It can feel like you are taking on a great deal of risk, and with the potential that everything will fail.
This is where franchising comes in. Thousands of branded businesses across the globe have franchising programs that allow want-to-be business owners to pay a one time fee to access their franchise program.
How it Works
Lets say you have $100k available to purchase a franchise, and you notice there is no Dunkin Donuts in your town, but that many people love the Dunkin Donuts in the city 30 minutes away. A light bulb goes off in your head as you realize that you could add a lot of value to your town by opening a coffee shop.
Instead of starting a new company, you decide it makes sense to open a dunking donuts franchise. Why is this smart? If you start your own coffee shop- it might take a year or two to convince your town that your coffee is what they want, and you would also have to spend time finding a manufacturer, and making a coffee that is of high quality. This may make it tough to become profitable quickly, and after all you need to feed your family in the meantime right? All of these factors make franchising a very attractive option.
The first step in starting your new Dunkin Donuts franchise is contacting the corporate office about your interest. They will then conduct research and will likely make you answer questions to determine whether you make sense to be a franchisee in your preferred location. After all, it has an impact on the corporate business and the Dunkin Donuts brand if your business performs poorly. It is a reflection of the overall company, so the owners will want to ensure that your business is positioned well from the start.
Costs to You
The main cost a franchisee will have is an upfront payment that will vary based on the company, but usually somewhere between $50-200k that will cover the cost of the franchising brand rights as well as the cost of building brick and mortar and potentially a sampling of products (free donuts!!) These can really be looked at as investments because the goal is that you eventually earn income above your costs and then all returns become profit to you and your franchise! Additionally, you will need to pay the franchise owner a royalty year after year, which is a % of income, usually around 3-10% of your total. You will also need to adjust your costs and products based on what management wants, so if they use lower margin products for instance, then you may have to as well.
Dunkin Donuts or Anne’s Coffee shop
So does it make more sense to franchise or to go all on your own. In the end, it comes down to your long-term goals. If you are someone that wants total freedom, then it makes more sense to start your own company, but keep in mind you must also bear more of the risk in this situation, BUT you may also assume all of the rewards.
What do you guys prefer?