How To Start A Franchise

Have you always wanted to be your own boss, run your own schedule, and take complete control of your career? If so, starting a franchise might be the right choice for you. Opening a franchise comes with all the benefits of running your own business, without the unpredictability associated with starting an entrepreneurial journey from scratch.

But is being a franchise owner worth it? After the events of 2020, many people are understandably hesitant to embark on a new business venture. However, in the current moment, starting a franchise is an ideal option for individuals who are inclined to run their own business. According to a recent report from the International Franchise Association (IFA) and Oxford Economics, 2022 is going to be a big year for franchise growth. Here are just a few of the most impressive stats from Oxford and the IFA’s research:

• Franchise brands drive 1.8 times higher sales than other non-franchise establishments.
• Franchises provide 2.3 times as many jobs than their non-franchise counterparts.
• Franchises pay higher wages and offer better benefits - typically paying 2.2% to 3.4% higher wages than their non-franchise counterparts.

Pursuing a franchise is an excellent opportunity in the current climate - but with great opportunity comes great responsibility. Running a franchise operation takes grit, determination, and dedication. But if you’re up to the task, you will reap all of the benefits a franchise offers. Starting a franchise can seem overwhelming at first, but don’t let that deter you. This ultimate guide will take you through everything you need to know about starting a franchise step-by-step.

What Is a Franchise and How Does It Work?

So, what do franchises do? In basic terms, franchise organizations are larger parent companies (franchisors) that have decided to allow people (franchisees) to purchase rights and run an operation as an extension of the franchisor. This means the franchisee uses the franchisor’s name, business model, products/services, logo, strategies, marketing materials, and training. Each franchise operation is directly affiliated with the franchisor and acts as a representative of that established brand. Think McDonald's, MAC Beauty, or Chick-Fil-A.

Once the franchisee has successfully opened a franchise, it’s their responsibility to keep things running smoothly and successfully. However, the franchisor has a vested interest in that operation’s success, so they will support the franchisee as needed. In short, a franchise opportunity is a close business partnership where each party is invested in the other’s achievement.

Can Anyone Start a Franchise?

Technically yes, anyone can start a franchise if they want to. But it’s essential to make sure that franchising is the right type of business ownership for you. Here are just a few examples of questions you should ask yourself before starting a franchise:

• Do you have the right background and experience for investing in a franchise?
• Do you have the capital to cover the upfront costs of starting a franchise?
• Does your personality and lifestyle match up with that of a franchisor?
• Consider your other obligations outside of work - do you have the flexibility to go to ongoing training and meetings?
• How much money can you reasonably and comfortably borrow to invest in a franchise?
• Do you have enough savings to live off of for a year while you go through setting up a franchise?

Once you have thought about your answers and identified if the franchisee lifestyle is meant for you, then you are ready to start the franchise process!

How Do You Start Your Own Franchise?

Is a franchise easy to start? Well, that depends on your definition of easy. Like with any career, starting a successful franchise takes work and requires a lot of responsibility and focus on your part. Therefore, having a clear and focused plan is extremely important if you want to set yourself up for success. Here are the steps you need to take when starting your own franchise:

Decide what you want to do and who you want to do it with: First, you need to decide what type of industry and franchise you want to pursue. There’s a seemingly infinite number of franchise options available, so it’s important to narrow down your choices right off the bat. Consider your background, experience, location, and what you are interested in. Additionally, it’s essential to weigh your franchise options against your own needs. This includes factors like local availability, company culture, and investment amount. Feel free to take your time and browse your franchise options for as long as you need, since this decision should not be made lightly.

Time to contact your franchisor and get that application submitted: After choosing your ideal franchise, it’s time to reach out for more information. Once you make initial contact, you should have the franchisors send you preliminary information about their franchise process and the steps involved with purchasing a unit. If, after reviewing that information carefully, you like what that franchisor has to offer, it’s time to submit your application. Oftentimes, the franchisor will require you to submit proof that you will be a good fit for their business model. This varies from business to business, with some companies listing an extensive number of requirements for you to meet if your application is to be accepted.

Make sure everything is legal: Once your application has been accepted, it’s time to work on the legal side of things. This includes consulting with a franchise accountant and attorney and to work through the legal aspects of your franchise operation and ensure that all of the fine details are solid and locked into place. Your accountant and attorney will need to review two main franchising legal documents that you can’t continue without: the franchise disclosure document (FDD) and the final franchise agreement..

• The Franchise Disclosure Document (FDD) is a legal document that defines the relationship between the Franchisee and the Franchisor. The FDD helps you understand the fees, business model, and commitments that are required in the Franchise Agreement.
• The Franchise Agreement itself is the master legal document that details all of the obligations and rights of all involved parties.

It’s vital to have your accountant and attorney review all of the financial and legal documents so they can explain any complex legal jargon that you might not understand. If you think the terms of your agreement are acceptable, you will then sign the Franchise Agreement and pay the initial franchise fee as determined by the franchisor. You can learn more about the legal processes associated with starting a franchise here.

Get your business plan written and approved: Now that you have your franchise deal locked into place, it’s time for you to make your own business preparations. This involves creating an exhaustive business plan that lays out your business operations and projections for the coming months and years. During this point in the franchise process, you will collaborate with your franchisor and conduct in-depth research into industry trends to ensure that your business plan aligns with the objective and mission of your franchise partner.

Discover where you want to set up shop: This is one of the most important decisions for everyone involved in the franchising process, for your location is directly related to the success of your business. For example, customers will simply pass you by if your franchise is hard to see from busy roads and highways, causing you to lose business. Luckily, you do not have to decide your location all on your own. Many franchises have real estate companies and agents that assist the franchisee with this process, so you won’t be alone! After you have found a location that meets requirements, you can submit it to your franchisor for review. Once they approve, you are free to sign a lease and begin development. The development process looks different for all franchises, with some having very specific and intense site, building, and design requirements.

Time to hone your skills: While your location is under development, it’s time for you to develop your skills. During this phase, your franchisor will place you in franchise training to learn the requirements of running their franchise and see the standards and business model associated with their unique operations. This means you will likely visit franchise headquarters for a few days or weeks.

Congratulations! Let’s celebrate with a grand opening: Once you have finished your training and your location has been fully transformed, it’s time to hire staff and open your business! As a way to celebrate and announce your presence to the world, you will collaborate with franchise headquarters to host a grand opening. Oftentimes this involves collaborating with your local community to spread the word and gain traction on your first day of business.

How Much Does It Cost To Start a Franchise?

Similar to opening your own business, there are many financial obligations involved with buying a franchise and setting up your operation. Although the overall cost of starting is not cheap, you do receive many special advantages that don’t come along with starting your own business from scratch. This includes business assistance, extensive training, a built-in customer base, and more. We’ll dive into the details of those advantages a bit later, but for now we’ll focus on the individual costs associated with starting a franchise.

The up-front cost of buying a franchise: One of the first costs franchisees should consider is the franchise fee. The franchise fee is the up-front licensing fee that you pay to purchase the right to use the franchise name. This amount typically ranges anywhere from $20,000 to $50,000, but it varies from franchise to franchise. Large franchises like McDonald’s will have more expensive franchise fees compared to other, smaller franchise companies or business opportunities.

Additional royalty payments to the franchisor: Since you are part of a franchise system (not a business opportunity) , you are required to pay royalties to your franchisor. As a part of your franchise agreement, you will pay a percentage of your monthly gross earnings. Ideally, your franchise should be able to produce enough working capital to sustain your business for as little as two or three months to as much as two to three years, depending on the industry standards for your franchise. In the beginning of this process, your franchisor will explain how much minimal capital you’ll need. However, it’s best to research your industry standards before choosing a franchise to partner with.

Training travel expenses: The individual cost to receive training is covered by the franchisor, but the costs for travel usually come out of your pocket. This includes:

• Plane tickets, bus tickets, or tanks of gas.
• Hotel rooms or other lodging options.
• Food expenses incurred as you complete your coursework.

Development costs: When starting a franchise, a lot of your money will go towards developing your storefront or restaurant. The total cost of this varies depending on a number of factors including:

• The condition of the real estate - this includes developing on empty land or renovating an existing building.
• The set-up or design of the franchise. Oftentimes, franchisors will have specifications or even building templates that franchisees must use.
• The cost of leasing a space or building a structure in your chosen area.

Inventory and stock costs: After you have finished developing your franchise location, it’s time to stock it with products and other inventory. This cost varies widely from industry to industry, so it’s best to research the inventory and stock costs for each industry you’re interested in before committing to a specific franchise.

Cost of recruiting, hiring, and keeping employees: Franchisees are generally responsible for paying their own employees. The specific costs involved with payroll services are typically included in the franchise disclosure document (FDD). Although you will learn best practices for recruiting and keeping good workers in your training, it is your responsibility to fund these processes.

How Do You Get the Money To Start a Franchise?

Now that we’ve reviewed the costs associated with starting a franchise, let’s explore the different financing options available. Most people do not have the funds needed to pay off franchise costs completely out of pocket. Luckily, there are many avenues people can pursue to obtain the funds they need. Here are a few examples:

Using franchisor financing: Oftentimes, the franchisor will offer franchisees tailored financing solutions to help with the cost of starting a franchise. Although this differs depending on the company, parent companies often offer partnerships with specific lenders or deliver capital directly to their franchisees.

Purchase a franchise using your retirement plan: With our Business and Franchising Funding Plan, you can use the retirement funds to fund your franchise journey – without taxes or penalties. You can purchase a franchise with any type of tax-qualified retirement plans like an IRA, 401(k), 403(b), 457(b), SEPs and others. You learn more about this funding option on our website.

Commercial bank loans: People most often pursue funding for their franchise through a traditional term loan from a bank. A bank agrees to offer you a lump sum of money upfront in this option. You are then obligated to pay off your loan with interest over a set period of time.

Franchise discounts for veterans: Many franchises offer discounts for Veterans who want to start their own franchise! These discounts help with initial franchise fees and other expenses. Although many franchises offer discounts to vets on their own, organizations like the VetFran program can also connect veterans to discounted funding opportunities.

How Much Does an Owner Make From a Franchise?

Since franchises span across multiple industries, the costs and profits associated with each practice differ wildly. Additionally, franchisors often don’t disclose income amounts or forecasts because they cannot guarantee that all franchise operations will perform the same. Therefore, it can be difficult to pin down exactly how much the average franchisee makes after opening their business. But there are clear indicators that the franchise industry is lucrative and thriving. For example, Franchise Economy reported that small franchise establishments supported nearly 8.4 million jobs in 2019. The same report stated that franchising produced $787.5 billion of economic output for the U.S. economy and represented 3 percent of the total Gross Domestic Product (GDP).

The Best Franchises To Own

With so many franchises out there, choosing the right franchise to partner with can quickly become overwhelming. At Franchise Opportunities, we offer an extensive catalog of franchises for you to choose from. Here are some of our favorites:

Dickey’s Barbecue Pit: With over 500 locations in 43 states, Dickey’s Barbecue Pit is considered to be one of the best restaurant franchises to own.

Healthy YOU Vending: Healthy YOU Vending is dedicated to bringing healthy snacks to vending machines. As the demand for more healthy food choices increases, so do the opportunities in this exciting $43 Billion dollar industry.

Mobility Plus: Interested in opening a franchise and doing some good? Mobility Plus might be a perfect fit. Mobility Plus provides various products to help Americans aged 65 and others with mobility disabilities get around safely and easily.

Allstate Insurance Company: If you have experience in the insurance industry and an interest in running your own agency, Allstate is considered to be one of the best options.

This is just a small sample of the most popular and successful franchises you can view a comprehensive list of top franchises on our website. You can also view some of the cheapest franchises to start in 2022 using our search function by selecting franchises with fees of less than $10,000. For example, if you want to find the cheapest food franchises to open in Georgia, you can simply enter your criteria, and our search engine will deliver.

What Are the Advantages of a Franchise?

Most of your fears revolve around the unknown and the unexpected when starting a new business. But choosing a franchise brand helps alleviate some of those fears by giving you continuous support and a successful framework to base your business on. Here are just a few of the many benefits you receive from starting a franchise:

The franchisee lifestyle: Although a lot of hard work goes into setting up a franchise initially, being a franchisee offers you a lot of freedom when it comes to your work-life balance. Once your business is established and stable, you can take a hands-off approach to the day-to-day operations of your franchise. You can make your own hours, plan vacations without worrying about PTO, and take control of your career.

Continuous business support: One of the biggest benefits of investing in a franchise is that you don’t have to go it alone. Your investment gives you industry insights, training, and a successful business model. Franchises can provide all the help you need, from development assistance to your marketing plan.

Established brand recognition and customer base: You purchase brand recognition when you invest in a franchise opportunity. This means people already know who you are, what you do, and trust that your brand will satisfy their needs making it easier for you to bring in customers. Also worth noting, a franchise comes with a built-in customer base. This means you already have people ready to use your services based on their previous experiences with the franchise brand. In fact, some franchisors even provide leads for your business to help you build recognition locally if that franchise does not already have an established presence in your location.

Ready to Start Your Journey as a Business Owner?

So, after learning all of that, how are you feeling? What are you thinking? We understand choosing to start a franchise is a monumental decision. As you continue to weigh your options and conduct your research, please check out our resources page or take our self-survey to see if franchising is the right path for you. Although there is a lot to process, if you have the right personality and drive, choosing to start a franchise can lead you to great success and a flexible career. If you have decided that you're ready to start your own franchise, don't hesitate to visit FranchiseOpportunities.com to explore your options.