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Starting a Business Example by Mr. Roeshink
Type of Business I have elected to try and open a franchise. Why a franchise? What are the benefits? 1. Track Record of Success 2. Strong Brand 3. Training Programs 4. Ongoing Operational Support 5. Marketing Assistance 6. Real Estate Assistance 7. Construction Assistance 8. Purchasing Power 9 & 10. Risk Avoidance
Disadvantages of a Franchise • Franchises can be costly to implement. Also, many franchises charge ongoing royalties cutting into the profits of franchisees. • Franchisors usually require franchisees to follow their operations manual to a tee in order to ensure consistency. This limits any creativity on the part of the franchisee. • Franchisees must be very good at following directions in order to maintain the image and level of service already established. If the franchisee is not capable of running a quality business or does not have proper funding, this could curtail success.
Weigh the options • After considering the possibility of failure and success rates of most entrepreneurs, I elected to go with what I felt would yield a higher level of possible success
Which franchise did I choose? • I decided to conduct research on the start up costs associated with opening a Dairy Queen in our local area.
Two formats to choose from DQ & Orange Julius or DQ Grill & Chill
Decided to go with DQ Orange Julius • Originally I thought that opening a DQ Grill & Chill would be a more profitable venture, however the costs to open one are substantially higher than opening a DQ Orange Julius. • Therefore, obtaining start-up capital for the Grill & Chill would prove to be difficult.
Why not DQ Grill & Chill • Dairy Queen requires a franchisee to have $400, 000 in liquid assets with $300, 000 as cash equity, and a minimum net worth of $750, 000. It will cost $895, 000 to 1, 195, 000 for 2048 sq. ft. building that seats 48, and $1, 080, 000 to $1, 370, 000 for 2709 sq. ft. building that seats 78. Check out the website to see available states.
DQ Orange Julius • Mall location study: • In 2006 total mall start-up and build out was $325, 000 • In 2009 revenues exceeded $329, 000 and have had sales of over $300 k per year since opening. • $8 k-$10 k a week in sales.
Franchises: 10 Reasons A Franchise May Be The Viable Business Choice Mr. Roeshink – Financial Operations
What is a franchise? • Franchising is the practice of using another firm's successful business model. • Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator, or a franchisee, to use the supplier's trademark and distribute the supplier's goods. In return, the operator pays the supplier a fee.
3 Basic Types of Franchises • 1) Distributorships, which grant the right to sell their parent company's product(s) such as auto dealerships (Toyota, Ford, Mercedes, GM, etc).
Trademark/Brand Licensing • 2) Trademark or brand name licensing, which gives the licensees the right to use the parent company's trademark or brand in conjunction with the operation of their own business ie. beverages (Coca. Cola) and sport franchises (Miami Dolphins, New York Yankees, etc).
Business Format Franchise • 3) Business format franchises, the type most people are familiar with (Subway, Meineke Muffler, Circle K)
Top 10 Franchises for 2013 Hampton Hotels Subway Jiffy Lube Int'l. Inc. 7 -Eleven Supercuts Anytime Fitness Servpro Denny's Inc. Mc. Donald's Pizza Hut Inc.
Let’s look at the most popular franchise format… • Business Format – Business format franchisors offer to their franchisees the license or right to sell its goods or services and/or use its business techniques.
Cont. • The franchisees usually pay an initial fee to acquire this right, and thereafter pay a percentage of their gross sales to the franchisor throughout the term of their franchise contract. In return for these payments, franchisees gain privileges, including the right to sell a proven and recognized product or service, to use the franchisor's business practices, and to receive initial training and ongoing support.
Additional Responsibilities • Additional responsibilities can and usually do include: • Requirements to meet a variety of quality controls for products and services sold. • Restrictions on what they can sell or how they can operate using the company's name. • Specifications for their business location and site appearance. • Prohibitions on the operation of any similar businesses during or after the term of the franchise agreement. • Franchisees usually have an advantage over their nonfranchisee competitors, since they have the rights to use the franchisor's: Brand names, trademarks, copyrights, trade secrets, and patents.
Additional Responsibilities • Uniform logos, storefronts, and interiors. • By following the franchisor's business practices and offering products that meet the company's standards, franchisees can consistently provide customers with quality goods and services. • Research has shown that the success rate of new franchisees is much higher than that for other new business start-ups.
Why Franchises Work… • So why do franchises work? • Here are the top 10 reasons…
1. Turnkey Business • There are many entrepreneurs that have exactly what it takes to run a successful business but don’t have what it takes to get their business up and running. Whether it be financing, negotiating lease terms or even the confidence it takes to quit their job and start their own business. Buying a franchise eliminates all the hard work: finding a location, negotiating a lease, hiring reliable contractors and doing all this on-time and within budget. When you buy a franchise you are buying a complete turnkey business.
2. Proven System in Place • When you buy a franchise you buy a system. All franchises have an already-established system in place that you must follow. These systems are designed to improve the overall productivity and increase sales of each franchise. Having a proven system already in place eliminates the guesswork and errors a common business owner would normally face.
3. Higher Likelihood of Success • Buying a franchise is very different from starting a mom-and-pop business. Since there is an already established system in place, there is a higher likelihood of success. If you follow the system the franchisor has put in place, you should be on your way to running a very successful business.
4. Corporate Image and Brand Awareness • If you buy into a franchise system that is already established the corporate image and brand awareness is already recognized. Customers are usually more comfortable purchasing items they are familiar with and working with companies they already know and trust.
5. Easier to Obtain Financing • Lenders are usually very comfortable financing the purchase of a franchise because they already have a proven track record. Bankers usually look at successful franchise chains as having a lower risk of repayment default and are more likely to loan money based on that premise. In addition, some franchise systems even provide in-house financing and/or leasing options.
6. Training • Most franchise companies offer a 1 -4 week training program that is usually held at their corporate offices or at an actual franchise location. This is what makes franchises stand out from every other business opportunity. The franchisor will train you to run your franchise exactly the same way their other franchise locations are run. This will ensure that you are running your business efficiently and will help to eliminate any common mistakes a new business owner usually faces.
7. Ongoing Support • When you buy a franchise you are never alone. You will always have the support of the franchisor and the support of knowing you are part of a growing family. You will always be able to pick up the phone and ask questions to the franchisor or even to other franchisees.
8. Marketing • There is usually no need to worry about advertising your franchise. The franchisor usually takes care of handling all of the marketing. If the franchisor does not handle the marketing, they will have an outline for you to follow and sometimes specific vendors that will have systems in place for you to use.
9. Exclusive Territory • When you buy a franchise you are also buying an exclusive territory in which to do business. Franchisors will only allow a certain amount of franchises to be open within a certain geographical region. You will be entitled to a certain area and no other franchises (within your franchise system) can be open within that area.
10. Own Multiple Locations • Being a part of a franchise system will always offer you more opportunities to grow within the system. Once you have become a successful franchise, owner the next step is to become a multi-unit franchise owner. After you have one successful franchise open with a great management team you can focus time on opening a second location. Multi-unit franchise owners manage more than one location and are able to sometimes double their income by taking on more than one location. Owning multiple franchise locations can be very lucrative.