4 Types of franchise – but which is best for you?
As a first-time business owner in California, rather than start from scratch you may be considering investing in a franchise. That’s not a bad choice. Franchises account for around 3% of GDP, and, according to research conducted by Francine LaFontaine and published in the Journal of Economics & Management Strategy, the two-year success rate of franchises is around 8% higher than for independent businesses.
The question is, what type of franchise could you buy?
Types of franchise
One of the attractions of owning a franchise business is that you can match it to your passion and your skillsets. Franchises are available across the whole spectrum of the economy, from automotive to education to hospitality to distribution.
It’s no surprise, therefore, that many first-time entrepreneurs choose to buy an established business in their sphere of expertise. And as franchises come at a range of investment levels, it’s a good way to buy a business that suits your finance model.
Franchises are also available in four major franchise systems. Indeed, the type of franchise you invest in should probably be your first consideration. So, let me explain what the four main types of franchise are.
Job franchise
This type of franchise is typically the lowest-cost franchise. It may be ideal for someone who wants to operate a business from home as a one-person operation.
You’ll have to buy equipment, stock, and perhaps a vehicle. The categories of business that you might operate under in this type of franchise include travel, plumbing, electrician, drain cleaning, real estate, domestic cleaning, pool maintenance, etc.
Distribution franchise
Sometimes called a product franchise, this type of franchise allows the franchisee to operate under the franchisor’s trademark. However, the franchisor does not usually provide all the system needed to run the business.
As a franchisee in this type of franchise agreement, you will sell or distribute the franchisor product. Most commonly, this product is a ‘bigger’ ticket item – cars, trucks, computers, white goods, and gas.
Large franchise businesses of this type include Texaco, Goodyear, Ford, and John Deere. In some cases, the franchisee also takes on some of the production process, such as the franchise agreements with Coca-Cola.
Business franchise
Should you purchase a business franchise, you get use of both the trademark of the franchisor and its entire system. In this case, the franchisor will offer training and support, and detailed procedural guides for pretty much all the business.
This is the type of franchise that most people understand as a franchise. It’s also the most popular, because, while you are the business owner and responsible for the business, you are operating within a tried and tested system with the highest level of support.
The most popular franchises under this type tend to be in food, retail, hospitality, fitness, and business services. The business franchise is usually ideal for those new to running a business – theoretically, if you follow the franchisor’s model, you should make money.
Investment franchise
Also called a management franchise, this type of franchise is most suitable for an investor who wants a less direct, hands-on role in the business. You invest money and employ a team to run the day-to-day activities of the business.
Your involvement may also include bigger-picture business tasks, such as developing business strategy, delegating responsibilities, and marketing. How you run this type of business offers a lot of flexibility – you can be ‘silent’ earning passive income, though in practice most investors in business franchises maintain an involvement.
You’ll receive training and support as you would were you buying a business franchise, but your focus will be more strategic than operational. This is often most attractive to those with management experience, or who don’t have skills that are directly related to the work involved, but who want to create a second income or extra income in semi-retirement.
Which of these franchise examples is best for you?
The franchise type that is best for you depends on many elements. You’ll need to consider factors such as:
- The level of involvement you want in the business
- Your skills and ability
- The time you can commit to running the business
- How much restriction you would be happy to have imposed by the franchisor
- Your experience in managing a team
You must be certain about which type of franchise you wish to purchase before making the investment. When you are sure of the franchise type you want to purchase, then you can move onto assessing the business itself.
One of the services we offer is consultation to help you discover more about each franchise system, and to learn which is most suitable for you. As Amy testifies:
“I really appreciated the time and energy Brian offered to try and help me find a franchise opportunity that matched my interests and lifestyle requests. Brian is a great person to work with if you’re seriously considering owning a franchise!”
Your franchise success depends upon the help and advice you receive. Book a 30-minute free consultation, and let’s get the ball rolling.