6 Things to Know About Franchise Investments
If you are seeking success without consuming your life, starting from scratch, investing in a franchise business is an interesting option for entrepreneurs. This is because it involves investing in a well-known and recognized brand. However, before making the decision for franchise purchase, there are certain things we should know about what a franchise business is and the precautions we should take to prevent risks and ensure sustainable success. PunThai has compiled all the necessary information for the franchise investments here!
What is a Franchise Business?
A franchise business is a business model where the franchisor grants rights to another individual or entity, known as the franchisee, to operate a business under their brand. This includes specifying operational formats, management systems, and service standards in exchange for franchise fees as agreed upon.
Key characteristics of franchise businesses include:
1. The franchisor grants permission and provides business assistance.
2. Franchisees must adhere to the operational standards set by the franchisor.
3. It is a mutually beneficial relationship between business partners.
4. Common use of trademarks, trade names, and operational systems.
Examples of best franchises to invest in are fast-food restaurants, gas stations, coffee shops, courier services, and hotels. This system helps reduce the risk for franchisees when starting their business.
However, before delving into franchise business investments, many people may wonder what they should know before purchasing a franchise. Some may not have studied beforehand, thinking that franchising is a business that can be started without much time or experience. Yet, there are 6 key points to understand before diving into franchise investment.
6 Things to Know Before Starting Franchise Investments
1. Assess Your Lifestyle Before Investing
Franchise businesses require significant investment of time and effort. Unlike regular jobs where you follow your boss's and company's demands, before opening a franchise business, consider your preferences and personal conditions. Factors such as working hours should be considered to avoid significant impacts on your personal life. Additionally, assess the franchise's flexibility in product adaptation, location change, and business type to align with your lifestyle preferences. Your preferences will allow you to endure in the business longer.
2. Study Franchise Information in Detail
Understanding the franchise business, its products/services, target customers, and marketing strategies is crucial. This understanding helps evaluate whether the franchise is suitable for you and your potential for success. Consider the following details:
- Deeply understand the franchise, including its history, philosophy, vision, and operation models to ensure alignment with your ideas and goals.
- Study the franchise's products or services in detail, including quality, differentiation, strengths/weaknesses, and production/service processes.
- Analyze the franchise's target customer demographics, geography, and consumption behavior to assess if these customers align with your interests.
- Understand the franchise's marketing strategies to evaluate suitability and success opportunities.
3. Calculate Costs and Cash Flow Carefully
Calculating costs and cash flow carefully is crucial for franchise investment. It allows you to assess the investment's worth and potential accurately. Consider the following:
1. Estimated Initial Investment Expenses
- Franchise Fee: Initial fee paid to the franchisor to obtain the rights to operate the business.
- Construction/Decoration Costs: Including rent, renovation, and standard decoration costs as per franchise requirements.
- Equipment and System Costs: Such as computer systems, accounting systems, necessary machinery, and equipment.
- Initial Working Capital: Reserve cash for operating expenses before the business generates revenue.
2. Calculation of Expected Revenue and Expenses
- Estimate Sales Volume based on franchise statistics and data.
- Calculate Revenue considering factors such as selling prices, discounts, and promotions.
- Estimate Operating Expenses including labor costs, raw materials, utilities, rent, maintenance, etc.
- Calculate Fixed and Variable Expenses to assess profitability.
1. Evaluation of Payback Period and Investment Return of the Franchise:
- Use initial investment data and cash flow estimates to calculate the payback period.
- alculate Net Present Value (NPV) and Internal Rate of Return (IRR) to assess profitability and investment returns.
4. Choose an Appropriate Location
Selecting an appropriate location can make it easier for the business to access its target customers, be situated in an area with high business potential, and operate in accordance with various laws and regulations, which will ultimately contribute to the long-term success and growth of the business. Considerations should include:
1. Assessing Factors such as Purchasing Power, Competitors, Accessibility, and Community Resources of the Target Customer Group
- Purchasing Power: Analyze the average income, purchasing power, and spending behaviors of the population in that area to assess income potential.
- Competitors: Survey and analyze other competitors in the nearby area to avoid overly intense competition.
- Accessibility: Consider the convenience of travel for customers and transportation of goods, such as proximity to highways, railways, and convenient parking spaces.
- Community Resources: Choose a location close to community resources, offices, and shopping centers to facilitate easier access to the target customer group.
2. Studying Local Regulations and Regulations Related to the Specific Business Operation
- Land Use and Construction Regulations: Inquire about various requirements, such as types of businesses permitted to operate in that area and limitations on building sizes and construction.
- Environmental and Safety Regulations: Study regulations regarding pollution management, waste, and safety systems.
- Public Utilities and Infrastructure Regulations: Inquire about details of connecting to various public utilities such as electricity, water, and internet.
- Tax and Fee Regulations: Understand various business taxes that need to be paid, such as signage taxes, property taxes, etc.
5. Prepare Competent and Ready Personnel
Preparing competent and ready personnel is another crucial component for the success of a franchise business, as personnel play a vital role in driving the business towards its goals. Therefore, it's important to prioritize and prepare for this aspect in advance.
1. Have a Clear Human Resource Management Plan
- Develop a clear manpower plan and organizational structure to determine job positions and the required number of personnel.
- Plan recruitment, selection, and hiring of personnel with qualifications that meet the business needs.
- Establish policies on compensation, benefits, and various incentives to attract and retain quality personnel.
- Establish a performance evaluation system and continuously develop the potential of personnel.
2. Recruit and Train Employees with Necessary Knowledge and Skills
- Recruit and select personnel with qualifications that meet the needs of the business, such as knowledge and experience in products/services, good interpersonal skills, and service skills.
- Provide training to impart necessary knowledge and skills to employees before commencing operations, such as product knowledge, job duties, work processes, franchise policies, and regulations.
- Conduct continuous training to enhance the knowledge and skills of employees regularly, both internally and externally.
- Create commitment and motivation among employees to retain quality personnel within the organization.
6. Have a Good Marketing Plan and Effective Management
Having a good marketing plan can help create awareness and stimulate sales for the business, while an efficient management and financial system can control costs, manage risks, and support smooth business operations. These are crucial factors that lead to the long-term success of a franchise business.
1. Develop a Marketing Plan and Sales Promotion Activities Aligned with the Franchise's Strategy
- Study and deeply understand the franchise's marketing strategy and brand communication.
- Plan marketing strategies and sales promotion activities at the local/regional level to align with the overall strategy.
- Design and execute marketing activities to create awareness, attract target customers, and stimulate sales.
- Continuously monitor and evaluate marketing operations to improve the effectiveness of the plan.
2. Establish an Efficient Management, Accounting, and Financial System
- Develop an efficient organizational management system covering operations, quality management, and customer service.
- Establish an accurate accounting and financial system in accordance with accounting principles and relevant laws.
- Set up internal control systems to prevent financial risks and fraud.
- Regularly monitor and analyze financial performance to control costs and improve management efficiency.
- Plan cash flows and manage working capital sufficiently to support business operations.
Now, for those who are still interested in franchise investments, you can go ahead and do so confidently. Once we have complete knowledge, investing in a franchise business is like sailing a ship. Although there may be obstacles on the way, once we know the direction, we can certainly reach the destination. For those interested in investing in a franchise business, invest with PunThai Franchise, where we offer various franchise models for you to choose from according to your preferences and interests. Registration is easy, and we will take care of every step, with a dedicated team to assist you. Join us and be a part of PunThai Franchise's journey to expand globally!
Reference:
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