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Business Ownership Through Franchising: Is it For You?

Dec 16, 2024

By Eileen Proctor of SBTDC Raleigh

IT’S TIME! 
You’re ready to flex your entrepreneurial muscles, become your own boss, start your own business. But coming up with that winning idea, putting together the systems and processes, hiring employees, marketing and growing the enterprise are just not your sweet spot. Are you destined to be an employee of someone else’s company for the rest of your life? The answer to this question may be very different than what you’d think thanks to an increasingly popular business model: Franchising.

What is Franchising?

Simply stated, franchising is where a franchisor, the owner of an established, successful  company, awards a franchisee, the purchaser of a specific territory, the rights to independently own and operate a business location using an established brand, systems, and operational support in exchange for upfront and ongoing fees. This model creates a network of independently owned and operated locations that enables the franchisee to benefit from a proven business model, training, and ongoing support, while the franchisor expands its footprint without directly financing and managing additional locations. It allows an entrepreneur to run their own business without having to do everything on their own.

Recent Franchise Growth

In 2024, over 3,000 franchise brands were operating in the United States. With just under 800,000 total franchise locations operating nationwide, these businesses collectively generate significant economic output and employment, demonstrating the vibrancy of franchising as a business model​. Three of the fastest growing sectors at this time are: 

The Southeast is home to about 30% of all U.S. franchised businesses, which amounts to $268.2B in franchise revenue and 2.6M employees. And–sound the trumpets–North Carolina ranks 4th in U.S. franchise location growth. Considering these high numbers and wide range of industries, you are likely contributing to those numbers by patronizing one or more franchise every single day.

Franchise or Bootstrap?

So why doesn’t every entrepreneur select franchising as their model of choice? Frankly, choosing between buying a franchise and starting a business from scratch involves weighing several factors. It boils down to the entrepreneur’s goals, risk tolerance, and business preferences. To determine if it may be right for you, ask yourself the following questions:

  1. How do you handle risk? 
    For more risk-averse entrepreneurs or those simply looking to lessen their exposure to uncertainty, franchises are an appealing option thanks to their established support system and proven business model.
  2. Are you a creative, ‘big-picture’ person, or do you prefer to follow a prescribed system already outlined for success? 
    The beauty of the franchising model is that all the initial, up-front work has been done for you—this includes creating a marketing plan, picking out uniforms, designing logos, deciding on store layout, vetting vendors, and ordering merchandise. With a proven business model in place and all details established in advance, you can hit the ground running from day one. 
  3. How do you handle taking direction from other people or organizations? 
    While your franchise will be yours to run and optimize, there are requirements for certain levels of spending, information exchange, and best practices for operations that will be required to protect the integrity of the franchise brand.

Advantages of Franchising

If any of this sounds the least bit enticing, you owe it to yourself to read on. While not a perfect model, there are several advantages of buying a franchise, including:

How Much Does a Franchise Cost?

A typical initial franchise fee can be $25K-$50K+ depending on the reputation of the brand, industry, tenure, number of locations, and level of support provided by the franchisor. This fee typically covers rights to using the brand name and trademarks, operational systems, marketing materials, opening assistance, and initial training and support.

Recurring costs paid to the franchisor include royalties (typically 4-10% of gross revenues), advertising and marketing (typically 2–4% of revenue) and technology. Understanding what the franchise fee includes and comparing it to the ongoing costs is crucial in evaluating the total investment required.

Of course, there are other costs involved in running a franchise just as there are with running an independent business: rent, maintenance, payroll, marketing, inventory, equipment, professional services, etc.

What Kind of Franchise is Best for Me?

Finding the right franchise involves careful research, self-assessment, and strategic evaluation of potential opportunities. Following these steps will help narrow down the best franchise for your specific goals.

  1. Assess Your Skills, Interests, and Goals
    Consider industries where your skills, experience, and passions align with business opportunities. Define your financial, professional, and lifestyle objectives (e.g., income expectations, work-life balance, personal satisfaction).
  2. Understand the Industry Landscape
    Research industries with strong growth potential, such as health and wellness, technology, food and beverage, or home services​. Consider emerging trends, such as sustainability, e-commerce, or senior care, to align with market demand.
  3. Analyze Financial Requirements
    Calculate your total budget, including franchise fees, initial investments, and ongoing costs like royalties and advertising fees. Ensure the franchise’s financial model aligns with your capital and desired return on investment.

Determine the Role You Want to Have in the Business: 

How to Find the Right Franchise

As previously mentioned, there are thousands of franchise opportunities to consider. Be sure to conduct your due diligence by exposing yourself to as many as possible. This can be done in a number of ways:

Peruse Online Directories such as Franchise Gator and Franchise Direct to explore options.

Speak to Franchise Consultants who are trained to help match you with franchises based on your goals and qualifications. Their services are provided at no cost to you; they receive a commission by the franchisor if and when a deal is executed.

The International Franchise Association (IFA) provides information on franchise opportunities, industry trends, and networking events.

The Entrepreneur Magazine’s Franchise 500, released in December of each year ranks the country’s top 500 franchises based on factors like growth, brand strength, and financial performance.

Attend local Franchise Expos to meet franchisors, learn about different brands, hear speakers and attend workshops. Some upcoming opportunities in NC include:

Assessing an Individual Franchise

Once you have narrowed down the options to just a few franchises, it’s time to scrutinize and evaluate the finalists.

As with any business decision, take your time. Don’t rush the decision. Conduct thorough research, weigh pros and cons, and assess all aspects before committing. And of course, if you need any assistance, feel free to reach out to your local SBTDC office to speak with a business counselor.

Eileen Proctor is a General Business Counselor with the Raleigh Center of the Small Business and Technology Development Center (SBTDC). She has amassed over four decades of diverse experience with enterprises of all types, including start-ups, large corporations, international entities, and her own entrepreneurial endeavors. Eileen has over 10 years of experience within the franchising industry, both on the franchisee and franchisor sides.

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