Catering Business Franchising Pros and Cons

Starting a new catering business can seem overwhelming at first and buying a franchise with a known brand name, business plan and marketing materials may be the easier way to go.

You have a manual to use. The menu is usually set with food prices and costs figured in.

Starting from scratch can allow you to plan and use your own expertise in a creative way that you won't be able to in a franchise agreement.

Pros:

1. When You buy a franchise, all of the decor, napkins, business name, and marketing is done for you.

2. Menus and prices are done for you.

3. You have a brand name food business.

4. Leasing is usually negotiated for you.

5. You have support when needed by the franchiser.

6. Your supplies may be less expensive if prices are negotiated by the franchiser.

Cons:

1. You have to pay royalties and advertising costs.

2. There may be expensive decor updating costs.

3. No room to be creative since franchises want all business to remain the same.

4. If there is a franchisee who is operating his business badly, you may lose business because of his reputation.

5. The franchise fee may be expensive.

Franchising Pros and Cons
 by: Tim Knox

Last week's question from Anthony R. on how to choose the franchise that would best fulfill his life-long dream of owning his own business sparked a number of emails from other readers wanting to offer their two cents on the subject.

Some folks offered helpful insights and suggestions on how to pick a franchise and a few things to watch out for, while other emails came from current franchise owners asking me to help them sell their operations to Anthony R.

Hmm, sounds like it's time to update the old business card once again. Tim Knox: Franchise Broker At Large… Who knows, maybe I can franchise the concept.

Last week I promised we'd take a closer look at a few of the things you should look for when considering a franchise opportunity. Keep in mind that there are thousands of franchise opportunities that range from the low end opportunities available for a few thousand dollars to the high end franchises that cost hundreds of thousands of dollars.

The difference in price is reflected in many ways: the viability of the opportunity, the level of training and support offered to the franchisee, the track record and financial stability of the franchiser, the success rate of the franchisees, and a dozen other factors.

All a lower end franchiser might offer is a training manual and the right to use their company name. Many also have very little interest in weeding out potential franchisees. The truth is many are in business just to collect franchise fees. They have little interest in whether or not a franchisee actually succeeds. If you have a pulse and a checkbook, you can become their franchisee. And your pulse does not have to be that strong.

The higher end franchisers have very strict franchisee requirements and will not allow just anyone to become a part of their franchise system. They also go to much greater lengths to ensure the success of their franchisees. They offer complete hand holding from start to finish and remain heavily involved in the business even after the doors open. Yes, you do pay dearly for their assistance, but as the old saying goes, you get what you pay for.

Here are a few things to look for in a franchise opportunity:

Turnkey operation

This is the most appealing feature of many franchise systems. Many of the top franchisers will scout the best location for the business, build and equip the facility, hire and train employees, put you through an extensive management training system, then toss you the keys. Furthermore, they will work closely with you for the first few months to help make certain that you know what to do with the keys once they've been tossed to you.

The majority of franchises don't offer such complete turnkey packages, so be prepared to do much of the up front work yourself. Often it is up to you to find a location, negotiate the lease, build out the space or erect a building, install the equipment, hire and train a staff etc.

Proven track record and management system

As mentioned earlier, many of the lesser-known franchise systems offer you a training manual, maybe a training video, and a few hours of telephone support. Not the best way to learn how to run a business. A good franchiser will provide you with thorough management training, either at their facility or onsite at yours. Since one of the reasons for buying into a franchise system is to tap into their expertise and know-how, thorough training should be a foremost consideration.

Customers waiting for the door to open

I don't have the statistics in my pocket to back this up, of course, but I'd bet the farm that every time a new McDonald's opens its door, it's a mere matter of minutes before the first Happy Meal is sold. Many franchisers spend hundreds of millions of dollars on national ad campaigns to promote brand awareness. This works great for the franchisee who can literally have customers waiting for the doors to open on the first day of business.

Always consider the downsides

There are downsides to franchising. Foremost is the high cost of entry. The top franchise opportunities require considerable investment on the front end, usually more of an investment than if the entrepreneur started a similar venture on his own. You could open an independent hamburger fast food restaurant for a fraction of the McDonald's franchise fee, but you probably won't sell as many hamburgers. What you're buying from McDonald's is not just a fast food restaurant that sells hamburgers. What you're buying is a brand, a reputation, and a proven business system with ready to eat customers. Be prepared to pay a premium for it.

Another downside is that when you buy into a franchise system you often have to pay a percentage of your revenues back to the franchiser. You might also be required to buy supplies from the franchiser, including inventory, paperwork, software, computer systems, and anything else the franchiser decides that they should supply to you.

And there in lies the biggest downside of all. When you buy into a franchise system you don't control your business, the franchiser does. You have very little say-so in running the business. You must follow their processes and procedures without variation. And should you decide to get out of the business you may not even be allowed to sell the franchise to just anyone. The new owner would have to be approved by the franchiser before a deal could be made final.

The bottom line, Anthony, is to do your homework and make sure the franchise you choose fits your personality, your lifestyle, and your pocket book.

About The Author

Tim Knox 
Entrepreneur, Author, Speaker 

Franchising - Everything You Need To Know
 by: Roger Morad

Business franchising has a long history of successful business companies expanding their businesses through franchises. The earliest of franchising ventures take us as long ago as the 1850s when Isaac Singer expanded his line of sewing machines. Some of the veterans of business franchises that need mention include Coca Cola which started franchising at a time when no one else was doing it. The modern day franchising of food chains started in the USA with a company called A&W Root Beer, which started the trend of quick serving food stores, in the 1930s. Franchising includes business systems that involve a "franchisor" who sells a certain business rights to the "franchisee" who purchases these rights in order to conduct the business that may include original terms of the franchisor. 

Franchising helps a business to achieve lateral growth, which means the increased sales of its products through these various franchise outlets. The advantages of business franchising are many, including a quick launch pad to aspiring entrepreneurs, and growth of the parent company. Relatively less training and skill levels are required for the franchisee in order to operate the business franchise, therefore, the parent company ends up spending less time and money behind a single franchise outlet. Franchising leads to the expansion of the mother company, and this is probably the biggest payoff to the same. 

On the downside of franchising, there are concerns for the parent company regarding the control and profit making of a single franchise unit. Epistemological origin of the word "franchise" includes the French root words of "honesty", but it is difficult for the franchisor to take this for granted. Individual franchising units may lead to problems of pricing and profitability concerns, as the rights allotted to the franchisee cannot always be regulated by the franchisor. Adding to the equation of the franchisor and the franchisee are other issues of control, use of raw materials, shipping of materials and other regional problems that crop up with the individual franchise unit. Legal terms are binding to the franchisee, and the violation of this result in the poor working of the franchise system, which leads to the loss in money. 

The legal aspects of business franchising are significant to the proper functioning of the franchise. The legalities of franchising include involving the franchisee and the franchisor in trust based cooperation, and if this is tampered with, there is a risk of hampering the business franchise. Several countries have individual franchise regulations and rules which should be followed by all the legal business franchising units in the country. Recognized franchising units can only allowed to function if they practice the norms that are laid out by the country. This is applicable to countries like India, and China, where the governmental regulations are vital for the franchising company. There are some countries which do not have any such specific franchising laws, which include countries like the United Kingdom. 

The world of business franchising has a lot to do with mutual cooperation between the franchisor and the franchisee, and this ensures profit for both. 

About The Author

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