Franchises and Multi-Level Marketing 1
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Sometimes it seems like the hottest business of the decade is the business of selling business opportunities.
Open any magazine aimed at small business owners and people who want to start businesses, and you will see page after page of ads promising to help you get started in allegedly lucrative businesses. You'll find ads for franchises that will put you into the "exploding" service industry, ads promising to send you "confidential reports" about some questionable new home business opportunity, and ads for established franchises with familiar names like Merry Maids or Meineke Discount Mufflers.
Reading these ads is one way to answer the universal question, "What kind of business can I start?" But will purchasing the franchise or business plans or equipment advertised in such ads really lead to easy money?
Here are some tips and real-life experiences to help you decide.
Is buying a franchise a good way to go into business?
It can be. The International Franchise Association estimates that about 1 in 12 retail establishments in the US are franchises and about $1 trillion in sales (about 40 percent of all retail sales) were made through franchised establishments in 2000. While not every franchise or every franchise owner is successful, franchising has the potential to reduce some of the risk of launching a new business by letting you copy a business concept someone else has already made successful.
What specific benefits does a franchise offer?
Depending on the franchise, among the benefits you might gain are:
- a business concept with a track record for success
- name recognition for the business
- management training
- access to proprietary methods and/or processes used in the business
- a ready-made business or marketing plan to follow
- ready-made ads, brochures, and other sales and marketing aids
- help with financing
What are the disadvantages?
The security you acquire by licensing someone else's business methods and practices has its price. Among the drawbacks of being a franchise are:
- Your start-up costs can be high.
- You will have to follow the franchisor's rules. That means you might have limitations placed on everything from what products and services you sell to what goes into ads, where you are allowed to sell, and even how your business is furnished.
- You will have to pay a percentage of your sales and/or a flat fee to the franchisor (company from which you purchase the franchise) each year.
- Your success is dependent in many respects on the talents, foresight, and stability of the franchisor.
- You will be locked into the terms of the contract with the franchisor whether your operation is successful or not.
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