Many entrepreneurs are faced with the choice of building their own business from the ground up or buying and running a franchise company. To help you decide, we answer some basic questions such as:
And what does a franchise owner do?
A franchise owner is an individual who buys the license that authorizes them to own and operate the right to a franchise unit with the company. They can sell the products or services of the umbrella company along with use of the same brand and trademark while also receiving ongoing corporate support in various aspects like training, marketing, and operations.
Opting for a franchise ownership is a lucrative alternative for entrepreneurs who want to invest in a business but don’t want to or don’t have the requisite knowledge to build from scratch an independent enterprise, which may even be risky.
Franchise owners typically buy a business that is part of a chain to leverage the advantage of working with a well-proven business model and system and an established brand. In essence, a franchise owner or franchisee, as they are called, typically pays the franchisor (owner of the umbrella company) a one-time, upfront franchise fee and an ongoing royalty.
But what exactly does a franchise owner do? Below we explore the main responsibilities of a franchise owner so you can make an informed decision when buying the rights to a franchise unit.
Responsibilities of a Franchise Owner
While franchisees don’t need to concern themselves with the creation and branding of a business model, they have other day-to-day operational responsibilities, much like any other small business owner. Here’s a closer look at what a franchise owner typically does:
Funding – Start-up Capital and Operating Expenses
The franchisee must pay a one-time, upfront cost to the franchisor to buy the rights to owning and operating the franchise. The initial franchise cost varies from business to business, but it typically ranges between $2,000 and $100,000.
In addition the franchisee is required to finance the construction of the facility as per the specified standards and fund the day-to-day operations. Like any other business, they would need to fund the operating expenses only until it starts generating positive cash flows. In this respect, the franchisee must accurately calculate the working capital requirements based on guidance from the franchisor. They are also required to pay the franchisor ongoing royalty which may be a fixed sum or a percentage of the gross sales.
- Learn More: Methods of Financing a Franchise
Learn and Train
Like any business owner, franchise owners are required to oversee the training of every employee to ensure they understand the industry demands and customer expectations. Therefore the franchisee has to attend the initial and additional training sessions (to stay updated with new systems and procedures), which may be conducted at the franchisor’s facility. They are then expected to develop effective training modules for their own employees to better serve their customers.
Run Marketing Campaigns
The franchisor may initiate their own advertising campaign directed at promoting brand awareness and increasing the customer base at all franchisees. But the campaign may not specifically target the franchise owner’s unit.
The franchisee is solely responsible for developing, running, and sponsoring its own locally-targeted marketing strategies to attract clientele. This provides the owner the independence and flexibility to design and execute its own marketing plans. To develop an effective marketing campaign, the franchise owner should ideally possess good business acumen.
- Learn More: Want to Grow Your Business? Here’s How You Can Expand Your Brand!
- Learn More: Gaining National Exposure For Your Business
Meet Customer Expectations
Since the franchisee directly sells products or services of the umbrella company, it needs to meet customer expectations or perhaps even exceed them by ensuring it meets the quality and service benchmarks established by the franchisor.
Customer relationship management is an important day-to-day responsibility of the franchise owner. This involves dealing with dissatisfied or irate customers and addressing complaints, and handling returns, cancellations, and refunds. Making customers happy is an important part of attracting and retaining a large customer base in today’s social media dominated marketplace.
The franchise owner ideally hires friendly customer service personnel and trains them to manage customer expectations effectively.
Abide By the Franchisor’s Guidelines
The franchisor provides a set of rules for the franchisee to follow in order to run the business based on established standards and uphold the quality benchmarks of the brand. The rules cover many aspects like pricing, interior design of the facility, employee uniforms, quality and service benchmarks, accounting standards, and hours of operation.
The franchisor may even make periodic visits to ensure that the rules are being followed as per the guidelines. Although it may seem like the rules restrict the autonomy of the franchise owner in running the business, it is not so. The franchisee is free to use its own judgment and business acumen in order to run the unit profitably as long as the given rules along with service and quality benchmarks are followed.
It’s a small price to pay in return for the considerable benefits of using a well proven business model and established brand name that ensures a large customer base. In order to ensure completely the expectations and the terms of the agreement, it’d be best for the prospective franchisee to carefully read the Franchise Disclosure Documents (FDDs).
Pay Ongoing Royalty
The franchise owner pays a monthly or quarterly royalty fee to the franchisor which is typically a fixed percentage of the gross revenue or a fixed amount. In this respect, the franchisee is expected to maintain accurate accounting procedures and calculate the fee appropriately based on prior agreement. It is the responsibility of the franchisee to make accurate calculations and pay the royalty fee on time, as per the agreed schedule. In the grand scheme for your business, this is usually a small price to pay for the ongoing support of the brand name and business model, and usually lands between just 5%-7% of your revenue.
The franchisor-franchisee relationship has enormous advantages for both the parties. The franchisor enjoys an incoming revenue stream while the franchisee takes advantage of running a proven business system and acquires customers easily by virtue of leveraging the established brand. In addition the franchise owner is accountable for a horde of operational and financial responsibilities, earning them the satisfaction of independently operating a profitable business unit.
To make the venture a success, it’s necessary to choose the business carefully, after conducting thorough research, speaking with fellow franchise owners, and inspecting the rules and regulations of the franchise agreement. Explore franchise opportunities to select the right business that is most likely to meet your personal, professional, and financial objectives.