Franchising - Definition, Advantages, and Disadvantages - Admission/Application Essay Example

Introduction At the onset of the global financial crisis, people all over the world are devising various ways and means to augment their dwindling income. From taking double work shifts to two part-time jobs, a single working individual in a household is never enough to support the growing needs of its members. Because of this, developing a business or owning a business franchise has become an option in improving one’s economic status. On the other hand, some people choose franchising as a career option due to inadequacy with their current day job. For others, they opt for franchising as a means of investing the money they received from being displaced with their previous jobs. From the word “franchise” or permit, franchising is a “network of interdependent business relationships that allows a number of people to share a: brand identification, successful method of doing business, and proven marketing and distribution system” (Gappa, 2009). It is a partnership of a company with a group of people who share business relationships, responsibilities, and a shared goal of keeping more customers within their companies reach. The phrase “buying a franchise” actually refers to franchisees or individuals who are investing in an established and prescribed brand name and operation system. One does not actually “buy” a franchise but instead “invest” in a franchise. In itself, one is not an “independent owner” of the brand or the franchise, there is control in assets of one’s company but the franchisee is licensed to operate someone else’s business system. Overall, franchising is grounded on the belief that a business would prosper better if someone else’s brand and operating system is utilized rather than creating and establishing an entirely new business. One of the advantages of franchising is that a franchise serves as a jumpstart in establishing and developing a business. It relatively establishes success in the soonest possible time due to an established brand name. Furthermore, it can also easily develop and establish a wide array of customer base faster than a newly developed brand name. Due to its network of operating system, it has less risk of becoming unsuccessful as every possible problem can be easily grasp of every member of the system (other franchisees). Existing franchisees can help out new franchisees during the operation stage. Meanwhile, customers tend to associate one brand with the same formula all over other branches. Franchises can have a problem if they cannot satisfy customer preferences in various localities – this is especially true in the food business. Chances of comparison across other branches are highly likely. Sometimes, too many franchisees tend to create confusion, certain individuality arise especially on the management aspect. In effect, they think of themselves as “individual owners” of a brand and not members of a business alliance. Thinking About Buying a Franchise? After taking the franchise quiz on Franchisehelp.com, it was encouraging to know that with a score of 40, this writer can actually have a potential on making it big in the franchising business. Aside from the financial aspect and risks associated with it, an individual must possess majority if not all of the following traits in order to stay in tip-top shape in the franchising business: a. The need to control everything and make all decisions to one’s self. As previously mentioned, one does not work as an individual when in a franchising business. It takes the effort of all members of the alliance to make sure that the brand name sticks to customers’ basic wants and needs. Remember: you are not an independent owner of a franchise. b. Handling the day-to-day operations of a franchise business. One should be ready in making one’s hands dirty. In other words, daily operations of a franchise business also includes taking over the duties and responsibilities of an absent employee, no matter how small or short a role it can be. It saves time (faster delivery of products and services) and money (instead of hiring another part time employee) on the part of the employer. c. Motivation and drive to achieve success. Despite stumbling blocks and inevitable disasters (such as natural calamities), motivation and drive to success should never waver. Obstacles should serve as a means to improve one’s business enterprise and continue pursuing one’s business ideals. d. Buying a franchise means buying a job? It is a big misconception and false learning to equate franchising with buying a job. e. Working long hours to succeed. The need to work longer hours to succeed is a must for any business endeavor. One must be prepared for it. f. Working without supervision and support staff. Discipline is a must for individuals to succeed in their franchising business. Learning to work alone is a must in order to develop the skills in running a business venture. It also helps in properly training personnel and performing sales function. g. Setting time and priorities. First things come always first. h. Supportive spouse. Often neglected part of the business plan, spousal support is a must for any business venture to succeed. In the future, the spouse becomes one’s pillar of strength in times of difficulty. Franchises and Opportunities The following are only a few of a number of companies that offer franchises on a global scale (based from Entrepreneur.com): McDonald’s Currently placed number two (2) in the Top Ten Franchises of 2009, McDonald’s has come a long way from just being a mere hamburger stand. It started franchising since 1955 when Mr. Ray Kroc, a milkshake mixer salesman, was impressed at how rapidly McDonald’s served its customers. At the time when they were using eight milkshake mixers at the same time, Kroc saw this as an opportunity to sell more mixers by encouraging the brothers Dick and Mac McDonald to become their partner. This partnership led into their first McDonald’s chain in Des Plaines, Illinois. As of the moment, franchising costs and fees include: franchising fee: $45,000; total investment: $950,000 to $1.8 million; and terms of agreement: 20 years, renewable. It requires its franchisees to have a cash liquidity of up to $300,000. A business experience in the food industry is a must. The company also provides training at its main headquarters for one week while it could also range up to two years in a local McDonald’s restaurant. Table 1. McDonald’s Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 12,161 1,055 12,362 6,482 2008 12,136 1,046 12,283 6,502 2007 11,674 927 10,498 8,078 2006 11,608 890 10,056 8,269 2005 11,639 902 9,894 8,135 Ace Hardware Corp. Currently ranked 6th in the Top Ten Franchises of 2009, Ace Hardware Corp. began franchising in 1976. Its history began when four hardware owners merged and join forces in buying merchandise in bulk order to be able to maximize profit and compete effectively with larger hardware stores. Its costs and fees requirements include: total investment - $400,000 to 1.1 million, franchise fee - $5,000 application fee, term of agreement – non-renewable. It also requires a franchisees a net worth of $400,000 and cash liquidity of $250,000. At least 15 to 25 employees are required to run a single franchise unit. Ace Hardware can provide training at their mother unit for two weeks while local franchises have daily ongoing trainings. Table 2. Ace Hardware Corp. Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 4,266 0 315 0 2008 4,321 0 372 0 2007 4,229 0 238 0 2006 4,140 0 225 17 2005 4,384 0 219 28 Kumon Math and Reading Centers As of 2009, Kumon Math and Reading Centers is ranked number 4 in the Low-Cost Franchises division. Its name was derived from its founder, Mr. Toru Kumon, who developed the Kumon method of learning in Japan. Kumon’s son was struggling with second grade arithmetic, thus making him realize the need for a strong foundation in addition, subtraction, multiplication, and division in order to excel in higher level math. Eventually, Kumon’s son was able to expand and excel in math. By the sixth grade, he was able to solve differential equations and integral calculus problems. The company’s costs and fees requirements include: total investment - $30,000 to $129,000, franchise fee - $1,000, ongoing royalty fee - $32,000 to $36,000 per student per month, and term of agreement – every two years (renewable). It requires franchisees to have a cash liquidity of $50,000 to $100,000, good business experience, marketing skills, and good math and communication skills. A franchise unit only requires at least two to three employees. The company does not allow absentee ownership franchise – 100% of current franchises are owner/operators. Training is available at their headquarters (for three months) while regional training is being held on a daily basis. Table 3. Kumon’s Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 1383 358 24800 20 2008 1,235 333 23,553 30 2007 1,222 344 24,150 31 2006 1,226 332 24,094 31 2005 1,218 325 24,300 31 Jani-King (Commercial Cleaning) Realizing the need for janitorial services in every commercial space, Jim Cavanaugh began marketing for janitorial services while working as a night auditor in a hotel chain. By 1974, Cavanaugh starting franchising for Jani-King with its customer base and charges fees depend on the size of the initial base. The company requires its franchisees a total investment of $11,000 to $35,000, franchise fee of $8,000 to $16,000, ongoing royalty fee of 10%, and with a renewable 20 years terms of agreement, varied net worth and cash liquidity requirements. Jani-King can be run from home while it does not allow absentee ownership of franchise. Trainings at a local office only run for 40 hours. Table 4. Jani-King’s Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 9,713 680 1,573 22 2008 10,698 668 1,614 21 2007 10,429 609 1,661 22 2006 9,933 580 1,630 19 2005 9,648 585 1,495 21 Instant Tax Service Currently ranked number one in the low cost franchises, Instant Tax Service was founded by Fez Ogbazion and by the first tax seasons had over 600 clients. The company started franchising by 2004. Its requirement costs and fees for franchisees include: total investment - $39,000 to $89,000, franchise fee - $34,000, ongoing royalty fee of 20%, and term of agreement of five years (renewable). Franchisees must have a net worth and cash liquidity of $10,000 to be able to franchise. It only requires three units to run a franchise unit while it does not allow absentee ownership. Training and support is made available at its headquarters for five days. Table 5. Instant Tax Service Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 1,208 0 0 11 2008 1,181 0 0 17 2007 473 0 0 64 2006 127 0 0 96 2005 47 0 0 76 UPS Store/Mail Boxes Etc. Founded in 1980 by Gerald Aul, Pat Senn, and Robert Diaz, its design was an alternative option to the US Postal service, mainly focusing its operations on providing packaging, shipping, copy and print services, mail boxes, computer time rentals, etc. The company requires franchisees to have a total investment of $154,000 to $293,000, franchise fee of $29,000, ongoing royalty fee of 5%, and a term of agreement of ten years (renewable). Franchisees should have a net worth of $150,000 and cash liquidity of $60,000. Each unit only needs at least three to five employees to be able to run. Daily trainings are held for two weeks at a time. Table 6. UPS Store’s Franchise Growth (as of 2009) Year U.S. Franchises Canadian Franchises Foreign Franchises Company Owned 2009 4445 340 0 0 2008 4,461 330 1,191 0 2007 4,454 312 1,134 0 2006 4,428 286 1,046 0 2005 4,260 273 932 0 Conclusion Indeed, franchising has become a global enterprise in the fast paced business world. Despite its rapid return of investment, one must keep in mind the downside of franchising. For one, it requires a huge capital. Furthermore, one must be able to take reasonable risks as franchise fraud is also possible. Dedication to the brand name is also a must. If one cannot work with its fellow franchise holder, then think twice about entering into a franchise business. Chances are, you will not succeed if you cannot work with individuals who take a strong stand in the business. And lastly, family support is of the essence in any arena. Be ready to take longer hours at work than spending it with your family. Works Cited Gappa, B. What is Franchising. Franchising.com. October, 2009. Accessed at http://www.franchising.com/articles/49/. www.Entrepeneur.com (companies cited) Read More