When contemplating a possible franchise arrangement, it is important for the entrepreneur to consider what will be provided by the franchisor. The services provided by a franchisor to a franchisee can vary greatly, but at the very least include the use of a name. It may also include an entire marketing or business system consisting of advertising, products, inventory systems, accounting systems, and procedure manuals and guidelines. The value of these things to a franchisee is tremendous, since the franchisee would not need to develop them independently. Independent development of these items could be an expensive and frustrating task for the entrepreneur.
Failure rates are lower for franchises than for independent businesses for several reasons. First among these is the fact that most reputable franchise providers put each potential franchisee through an extensive screening process. This process includes a requirement for a certain level of capital availability. There are also business knowledge and training requirements which further reduce the likelihood of failure. This is not to say that a franchise agreement is a guarantee of success. Some franchises fail anyway due to unreasonable expectations in a given market area. It is ultimately up to the franchisee to look into all the circumstances of the prospective agreement, particularly if they are new to business, and get educated second or third opinions before making the leap into a purchase.
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