While the concept of franchising originated long ago, somewhere back in the Middle Ages, it didn’t really take off until after the Second World War. A franchise is a kind of authorization given by a company allowing a person or group to trade its goods or provide its services under the company’s name.
Benefits of franchising
There are benefits of franchising for the franchisee and franchise owners. For the company offering the franchise (the franchisor), it’s a chance for it to expand their business to places they may not have had the resources or funds to previously. They also get the added benefit of another ambitious member of staff to their team.
Franchisors love franchisees as they know how keen they are to succeed. Franchising is not for the faint-hearted or the shallow-pocketed, as there are many start-up costs, so those that are investing in a franchise are going to be pretty serious about it.
For the individual (the franchisee), it’s a chance to hit the ground running operating under an already successful brand. Before you sign on the dotted line you’ll get the chance to research just how profitable the brand is and where your competition may lie.
Marketing costs are all taken care of by the franchisor and you get the company’s full backing and support throughout the whole time you have a relationship with them. As a general rule of thumb, franchises are often more successful than new start-ups as they have far fewer costs and they’ve already got a name for themselves.
Downsides of franchising
There are, of course, downsides to a running a franchise too, unfortunately. For the franchisor, although the individual is vetted, in some ways they have no control over who they’re taking on. Chances are as long as they have enough money they will be accepted to join the network.
This can be worrying for the franchisor as their brand is in the hands of the new franchisee. Another downside in offering a franchise to another party is that it will bring in fewer profits than a second establishment would. With a franchise, only a royalty is collected as opposed to the total profit.
For the franchisee one of the biggest downsides to investing in a franchise is the high start-up costs. Not only are there franchising fees to consider, you’ll also need premises, staff, working capital, and nearly all franchisors will insist on you having a few thousand in liquid assets before they even consider you. You also have a lack of control over many parts of the business as a franchisee. Often, the franchisor will dictate the hours to be worked or the pricing of products.
Finally, it can be exhausting getting a new franchise off the ground. Although you have the benefit of trading under a well-known name that’s likely to do a lot of the marketing for you, it’s still a new location and people need to get to know it. You’ll also need to spend time hiring and training new staff and kitting out the new establishment, as well getting to learn the ropes yourself.
The Subway Restaurants Franchise
One such company that’s no stranger to the franchise game is Subway. Founded back in 1965 in Bridgeport, Connecticut, Subway is an American fast-food chain most well-known for its tasty submarine (sub) style sandwiches. The company has been offering out franchise opportunities to individuals since the mid-1970s. Since then, it’s grown exponentially and now has more than 44,000 locations around the world in more than 100 different countries.
To get in on a piece of the Subway Franchise action, there is a set process you will need to follow with strict requirements that you’ll need to meet. For potential Subway franchisees, the first thing you’ll need to do to be considered for this restaurant chain is complete an online application form. If that’s accepted, a few further checks will be carried out including both background and financial checks before any franchise agreement is offered. If all those come back OK and you have the capital to proceed, you will move on to creating a business plan, finding premises, and finally setting up your franchise.
There are several costs to consider when setting up a new Subway franchise business. All new franchisees have a fee to pay an initial fee called the franchisee fee. For Subway, this is $15,000 for any franchises in the United States or Canada. Because it’s a franchise and not your own brand, you don't get to keep all of the profits either. The current ongoing royalty fee for Subway franchisers is 8% of gross sales while the ad royalty fee is 4.5% for the fast food company.
You’ll also need a minimum amount of liquid capital of between $30,000 and $90,000 and a net worth of at least $80,000 and $310,000 before the folk at Subway will even look your way. The exact figure will be determined by the offer of the franchise and will depend on a number of different factors including the size and location of the proposed business.
Taking into consideration all the fees, and other startup costs involved, the total initial investment needed to open up a Subway franchise is somewhere between $117,000 and $264,000. If you don’t have that sort of cash just laying around, Subway does offer eligible candidates in-house financing in which to help cover the cost of things such as the franchise fee and equipment.
In return for your investment in becoming a franchisee, Subway offers two training courses going over important business concepts, management skills, and methods of operation. There’s also a toll-free line for ongoing support as well as a number of newsletters and meetings in which to help you build your franchise into a successful one. With the Subway franchise, there is always someone on hand to help.
Hopefully, this article hasn’t put you off the idea of taking on a franchise too much. Franchising is certainly not for the faint-hearted, but it can be very rewarding nonetheless. If you decide to go down the franchising route and have enough spare capital, Subway is definitely an option to consider. At the end of the day, who doesn't love a Subway?