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Business Start-Ups Are Risky
According to statistics compiled by the SBA (Small Business Administration), a U.S. government agency responsible for, among other things, guaranteeing loans to owners of small businesses, somewhere around 33 percent of new ventures fail within their first two years. When deciding whether or not to start a business, an entrepreneur must first assess a variety of factors. These may include:

• Management elements – What sort of knowledge is necessary to run this particular business; how does it fit with my skill levels or those I will select to look after day-to-day operations
• Market elements – What sort of need exists for this particular product or service, and what is the likelihood it will retain market share and preferably grow in demand
• Financial elements – How much does it cost to open and run this business; how likely is it to attract investors or some other form of third-party financing
• Brand elements – Is there any existing value to the company name or product among its perceived clientele; how will one create “market buzz” to drive sales?

Every topic above contains a certain element of risk. The wily entrepreneur will do his or her best to mitigate these risks, which means reducing the chance that they will have a negative effect on the company’s bottom line. One of the ways to do this – on a top-line basis – is to consider opening a franchise business instead of a non-franchise operation.

How a Business Becomes a Franchise
“But every company had to start somewhere,” you’re likely to exclaim. Agreed – there are real people behind the start of Pizza Hut, Grease Monkey, KinderCare, Merry Maids, and thousands of other businesses that are franchise leaders in their respective industries. But no company starts from scratch and immediately turns into a franchise opportunity – well, none you would seriously consider buying. Successful ownership comes from trying different things and keeping what works while throwing away what does not. Systems that range from financial models to packaging, signage and marketing strategies are perfected, after which one franchise is awarded on a test-case basis. The parent company watches closely to see if their home office success can be duplicated, or if some elements need to be tweaked or eliminated altogether. A few more franchises come online, and the self-examination continues. Once a winning formula has been identified, it is wrapped up into a neat package and offered for sale to budding entrepreneurs.

Management Benefits
Franchises come with a ready-made business plan. Everything you need to know is contained in the prospectus and franchise agreement. The skills you will need to be a successful franchisee are stated quite clearly, plus most parent companies will not award a franchise if you are a poor match – especially in temperament – to do the things required of you as one of their operators. Every franchisor offers extensive training, often combined with a few days or a few weeks of working alongside one of their franchisees. What you don’t know, going in, can be taught in a relatively short time.

Market Benefits
A successful franchise business has already established its value in the marketplace. People like the taste of KFC’s chicken and they trust the local UPS Store to ship their package to the right destination. Nearly every franchisor has trained staff members who do nothing but seek out the best spots in which to operate. Traffic patterns, building lease costs, population density, and countless other factors are analyzed to give a franchisee the best possible place from which to do business. They also carefully assess whether or not a particular region is at risk for over-saturation, whether by having too many of their own franchises in the area, or too much competition.

Financial Benefits
Some franchisors provide corporate financing or the ability to obtain third-party money. The SBA looks more kindly on entrepreneurs who are opening a franchise business, mainly because there is a history of success exemplified by similar franchisees in the market. You also have an exact idea of how much money it will take to open the doors for business – specific figures on lease rates or build-to-suit real estate, plus the cost of equipment, supplies and inventory – as well as an expectation of monthly earnings as provided by existing franchisees in similar markets.

Brand Benefits
As the owner of a local representation of a regional or national corporation, no one doubts your ability to deliver a good product or service at a fair price. You may open the best-run doggie daycare establishment in the city, but it will take some time and lots of goodwill to convince pet owners to patronize “Doug’s Dog Spa.” And how tasty are those sandwiches at “Sally’s Sub Shack,” anyway? No one thinks twice about taking their car for an oil change at one of the national chain establishments, plus ad exposure of a single-site business can never compete with the media buying power of a huge corporation.

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