To Franchise or Not To Franchise? What a Question!
So, you want to start your own business? You’ve got that spark of entrepreneurship in you that longs to establish and create, not just maintain. You want to be the commander of your own ship, chart your own course, and build your business from the ground-up from scratch with your bare hands!
…well, maybe not TOTALLY from scratch, and maybe a few tools couldn’t hurt, either.
Today’s options in entrepreneurship gives potential small business owners the tools they need to buy an established franchise with an established customer base to almost immediately start turning profits.
A franchise, to clarify, is an alternative to the “chain store” in which people buy the rights to use a company’s business model, brand and products for a set period of time in exchange for keeping a significant percentage of profit generated. Think McDonalds, 7-Eleven and Cinnabon, and you’ve got the right idea.
And really, it’s easy to see why franchise ownership is so tempting. Outside of footing the bill for location, stock, equipment, licensing fees, etc., most of the groundwork is already laid out for you. Everyone knows what your business is, your customers are ready to line up at the door for opening day, and you don’t have to worry about simple things like maintenance costs and insurance coverage! Right?
Well,… not quite.
As it turns out, franchise owners DO have things to think about as well, especially when it comes to insurance. Not as many as a from-the-ground-up small business owner, obviously, but a few that are unique to the field of franchises alone.
First, most, if not all, franchisers will require insurance coverage, but will very likely not provide it for you OR foot the bill. Building and contents is typically required. Though few franchisers will actually stipulate and review coverage, being frugal to lower costs is usually a bad idea since damage to the building and/or contents and stock is usually the responsibility of the franchisee (which is you, by the way). Essentially, the franchiser wants to know that any losses incurred can be recouped.
Second, the franchiser’s policy often won’t cover things like liability and business interruption insurance (which kicks in when your franchised business is unable to operate), sort of like how a landlord’s policy won’t cover your personal belongings. Will you be able to get back on your feet if anything catastrophic happens to your business? This falls out of the jurisdiction of the franchiser and will be entirely up to you.
Finally, owning your own franchise is a great way to get a leg up on the competition. When starting a business from scratch, one has to build a customer base, a community, a brand, an image, and a successful business model. And, of course, the playing field is rife with competition. Franchises come with all of this ready-made out of the box, and competition is the last thing on the owner’s mind, right?
Franchise owners may have the unique problem of being in direct competition with… well… themselves. Decide to open a Subway next to the local beauty shop, and you’re not only in competition with other restaurants and sandwich shops, but also the Subway at the mall, the Subway that resides at the Front of Wal-Mart, and the Subway just one town over. Will location be enough to draw customers away from other Subways and over to yours?
Also, at times, franchise owners can find themselves in conflict with their parent companies. Major companies are entitled to make any changes and decisions they see fit, but it’s not out of the realm of possibility for franchisers to demand extra capital for upgrades after a devastating loss or to enact changes in policy that seem to sabotage the franchisee’s chances of survival. (Hint: This is where business interruption insurance comes in) Major changes can happen, and they don’t always come in hurricane-shaped packages.
Now, don’t get me wrong. Franchises are wonderful business opportunities and have created many happy and successful entrepreneurs along the way.
Just don’t get the idea that owning one is a ready-made success story on a sesame seed bun with a side of fries and a shake.
First Baldwin Insurance