A conversion franchise, according to uslegal.com, is a franchise system in which the already existing independent businesses are converted into franchises. Hence it allows an independent business to use a national franchise system’s name, trademark and operating system.
The phrase also means that somebody with a good small business concern is offered the opportunity to convert his otherwise independent business into a franchised business by affiliating with a franchised organization. After this decision, once there is an agreement to do so, the former business would no longer be known by its former name, but rather by the name of the franchise chain.
Lastly, conversion franchise may also mean that a pre-existing, independently-owned business is transformed into members of an already standardized network.
So does it pay to enter into a conversion franchise? Will it be beneficial to one who already has a small but growing and profitable business?
Conversion Franchise: How It Works
Usually, entering into a franchise business means expecting the following: having a franchise agreement and paying an initial franchise fee alongside it; your business identification will be subsumed into a franchise organization; you will pay a regular advertising fund; and there is another required periodic royalty payment which typically starts with the first dollar of income you earn every month.
The conversion franchise contract often obliges the converting franchisee to an affiliation term of at least five (5) years, with a non-competition agreement to prevent you from departing from the franchise chain or you may lose your business once you decide to leave. And once you decide to leave the franchise, you may have a sizable sum of litigation costs involved with the enforcement of conversion franchise departure agreement, even though this aspect of this business concept may prove to be difficult to enforce. In this case, you have to spend once more to re-identify and revert back your business to its old name and to have marketing blitz expenses to spread your name to its target market and consumers again.
The conversion franchise business, because of you belonging to a larger organization with national coverage, has its own innate synergies that could facilitate the growth of your business which will never be made available to a small or even a group of businesses that lump together as one.
Advantages of Entering Into a Conversion Franchise
The scale of your business and profitability is enhanced because potential franchises already have a physical location, the business experience and regular customer that can be utilized. Thus, some of the advantages to a potential franchisor include the following:
- A streamlined process compared to starting a new business
- Lower capital requirements because the infrastructure is already built therein
- The distribution of risk because stores serve various populations in different locations
- The shop owners’ valuable local customer knowledge such as common ailment and treatment patterns, or local traditions, values or mentalities of a specific community
Thus, a conversion franchise would lessen your need to look for a good location for your business. There is also no need to have high levels of profitability when you enter into the franchise. Maybe even a losing business can be converted into a profitable business once the owner enters into a franchise because as explained above, the old business image and name will already be subsumed into the new franchise, or much larger business name and familiarity with customers. The number of employees for the whole business organization would not be a major concern for the individual business owner since each shop is accountable for determining the optimum number of employees it should maintain per store.
However, the would-be franchise convert should be forewarned about the franchise business’ benefits not taking into effect immediately. It would take some time. There are likewise other challenges such as learning to make a fit between one’s existing business practices with those of the franchisor. The new franchisee may opt to choose which of the rules to adopt and apply as he enters into the franchise business.
The franchisor must strike a balance between implementing standard practices and customizing parts of the business model to suit the local circumstances.
In order to avoid entering into a conversion franchise failure and disaster, it is good to do some due diligence to avoid the pitfalls of converting your business into a franchise as well. However, your otherwise fledgling startup and personal business may have more to gain by converting into a franchise, rather than staying an independent enterprise.
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