Introduction to Franchises
Simply put, Franchising is a partnership relationship. As a small business owner, you have to decide if you truly want to be in a relationship with an authority in your business operation. This can be a mutually beneficial arrangement or a nightmare from day one.
This series is designed to help you: first, understand what a franchise is, secondly, determine if franchising is for you, third, generate a plan to get into a franchise, and finally, learn the nuances of franchising from the financial to the contractual.
Right now, you are either a small operating business or you are considering going into business. You are asking yourself a lot of questions, and one of those questions is ‘Is a franchise for me?’ Well, you need to understand what a franchise is before determining whether it is a good choice for you.
The spirit of owning a business is what drives most entrepreneurs. Knowing that they generated the concept, developed the plan, and created the business is what gives them the pride of ownership. However, most folks do not have the ability to develop a plan and carry out the plan to see the new operation to success. That is where franchising comes into play. A relationship is created where an organization becomes a mentor, a full knowledge resource, and you are the student or apprentice.
The mentor provides the knowledge and the apprentice provides the enthusiasm to carry out the plan. In exchange for this relationship, the apprentice agrees to compensate the mentor, franchisor, a fee and/or a percentage of the revenue in the future for this up front information and guidance. The advantages are impressive and include:
Greater chance of success for the new business owner;
- Higher standard of quality in the product/environment/service delivered to the customer;
- A learning curve that is as shallow as possible; AND
- A name that is recognized in the community, region, and possibly nationwide.
Now for the drawbacks of this relationship, note how I describe this as a relationship. Similar to a marriage, you get out of it what you put into this arrangement. This is a true business partnership. You become bounded to the franchisor in a mutual covenant. The franchisor provides an immense amount of help up front and you the franchisee return this favor over time. It is bounded by a formal agreement called a franchise agreement. You need to fully understand this agreement. That is why the Federal Trade Commission requires that the franchisor provides this agreement to you for several days prior to signing. It gives the potential franchisee an opportunity to comprehend the relationship prior to commencement.
What have you learned?
A franchise is a partnership relationship between two parties. The franchisor provides a knowledge base of information and help for a franchisee to start a business.
- This relationship is bounded by a formal document called the ‘Franchise Agreement’
- The franchisee becomes beholden to the franchisor over a lengthy period of time to repay the franchisor for the upfront mentoring and for the use of the recognized name.
Now that you have some understanding of what a franchise is, you need to determine if this is right for you. We’ll explore this in my next article in the section dealing with franchise operations. Act on Knowledge.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.