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Owning your own business can be appealing. After all, you can create your own schedule, be your own boss, and set your own path to develop your career. However, only about 30% of startup companies survive long-term. This number can scare many people out of starting their own businesses. Luckily, there is another way to own your own business without starting from the ground up: franchising.
Those who decide to purchase a franchise benefit from using an already established brand and logo to work from. With that brand comes an established customer base—the franchise owner just has to keep those customers happy. Taking these benefits into consideration, you might be wondering how to start a franchise.
This article aims to cover franchise requirements to get you on the right path toward starting your franchise business.
What Qualifies Something as a Franchise?
A franchise organization is a parent company or organization (franchisor) that sells rights to people (franchisees) who agree to run operations as an extension of the parent company. The franchisor allows the franchisee to use their name, business model, products and services, logo, strategies, marketing materials, and training in exchange for acting as a representative for the brand.
Ultimately, the franchisee is responsible for their business’ success. However, to help the franchisee, the franchisor will provide supplies, training, and additional resources needed to run a thriving franchise. Because franchises are partnerships, both parties rely heavily on each other and work to help each other achieve their goals.
Can Anyone Start a Franchise?
You do not need any prior experience with owning a business or franchise to become a franchisee. While anyone can start a franchise, it may not be a good fit for everyone. Taking this Franchise Opportunities’ self-evaluation survey can help you figure out if you are.
What should you consider before buying a franchise? The list below provides several important points to think through before deciding to become a franchisee.
Money: Starting a franchise takes a significant financial investment on your part. While there are franchises you can invest in that don’t require as much money, you will have to invest a significant amount both upfront and while running operations, including for payroll and to stock supplies. We will touch more on this topic later.
Background: Franchisors will train you on how to successfully represent their brand, but they usually do not provide basic management training, such as how to keep track of finances. Before applying for a franchise, make sure you have some basic management and business skills. If you don’t have any but want to run a franchise, you may consider taking some classes at a local college or partnering with someone who does have that knowledge.
Personality: To run a franchise, you have to be willing to follow rules. After all, you will be representing someone else’s brand and will be expected to follow corporate policies. If you prefer not to follow someone else’s policies, starting a franchise may not be the right move for you.
Time: Running a franchise takes a significant time investment, especially in the beginning. While you can create your own schedule, there may be times when you will have to work longer hours to make sure operations run smoothly, and to attend training and meetings. If you want to avoid working overtime, you may have to consider hiring employees who you can delegate responsibilities to.
Interests: Doing some research into specific franchises is important to determine whether you should start one. What interests you? What are you passionate about? Try to find franchises that align with those interests and passions. If you enjoy the industry your franchise is a part of, you are more likely to enjoy running it. To search for franchise organizations based on industry, click here.
If you review the above points and think that you would be a good fit for franchising, you can proceed with filling out an application.
How Much Money Do You Need to Start a Franchise?
As mentioned earlier, the amount of money you need when buying a franchise cost can be high. However, it is important to note that franchising is usually more cost-effective than starting your own business because you have the franchisor to support you and a pre-established customer base to draw from. You won’t have to worry about getting your business off the ground.
How much it costs to start a franchise or business opportunity varies depending on which one you invest in. Franchise Opportunities allows you to sort your franchise search based on investment level. These levels list the franchise fee or cost to invest in a business opportunity and range from less than $10,000 to over $500,000. When considering how much you want to invest, also think about how much support you want. Franchises tend to cost more money and offer support and training to franchisees. Business opportunities typically do not offer support or training other than to launch the business.
Aside from the upfront franchise fee, franchise owners also have ongoing payments such as:
Royalties to the franchisor (these are a percentage of your monthly gross earnings).
Annual licensing fees (to keep the right to use the brand’s name and logo).
Travel expenses for any training required of you, including for hotels and flights or car rentals.
Costs associated with leasing a space to run your franchise.
Inventory and stock costs.
Payroll for employees.
Together, these costs can get overwhelming. Luckily, there are some solutions to help you pay for your franchise:
Franchisor Financing: Many franchisors have specific financial solutions for you as their franchisee. For example, some have a partnership with certain lenders that you can use to help you start up your business. Some companies even offer you deferred payments while you are first starting out.
Retirement Plans: With Franchise Opportunities’ Business and Franchise Funding Plan, you can buy a franchise using any tax-qualified retirement plans you might have.
Commercial Bank Loans: If you don’t have enough money upfront, applying for a bank loan can help. You will then have to pay it off with interest over a specific amount of time.
SBA Loans: These loans are partially backed by the Small Business Association. They are like commercial bank loans, but they are a bit harder to get and tend to have lower interest rates over a longer repayment period.
Discounts for Veterans: Many franchisors want to help veterans figure out what to do next and consider them to be good franchisee candidates, so they offer discounts to them.
Alternative Methods: If you have trouble getting a bank loan but still need some assistance, online lending options like Kabbage or On Deck might work for you. You may also have friends or family who will loan you the money in the beginning.
What Documents Are Needed to Open a Franchise?
Once your franchise application has been approved, there are two main franchising legal documents that you will need to sign: a franchise disclosure document and a final franchise agreement.
Franchise disclosure document (FDD): This document provides an overview of the company, a description of the fees that the franchisee will have to pay, the company’s business plan, and any other pertinent information relating to the responsibilities of both the franchisor and the franchisee. Essentially, this document establishes the relationship between the two parties.
Final franchise agreement: This is the most important of the franchise legal documents. It lists the obligations and rights of both the franchisee and the franchisor. It serves to protect both parties.
How Much Does a Franchise Owner Make?
A franchise owner’s profits vary depending on many factors, including location, industry, and your abilities. However, when a company accepts your application to start a franchise, they should provide you with typical franchise earnings in the FDD. If the franchisor does not provide this information in the FDD, you can reach out to other franchisees of that company to ask them what their business typically makes. If you decide to go this route, try to ask several franchisees to make sure you get an accurate picture.
With that being said, the more than 750,000 franchise businesses in North America generate more than $1 trillion in sales each year. Franchises also “drive 1.8 times higher sales than comparable non-franchise establishments” and “provide 2.3 times as many jobs than their non-franchise counterparts.” All of these prospects make franchising well worth the investment.
How Do I Start My Own Franchise Business?
Now that you know the process of franchising a business, it’s time to apply for one. Franchise Opportunities can help. We offer an extensive list of companies you can work with to set up a franchise. You can sort them based on industry, investment level, or state where you want to start it. Among the top brands using our network are Subway, The UPS Store, and Midas.
We also have several other useful resources to help you in your franchise journey. They include:
The Finance Center: This tool helps you find ways to finance your franchise.
Guides: These include one on how to find and run a successful franchise, one on what it takes to buy a franchise, and one on franchise agreements.
Net Worth Calculator: This tool will help you determine what you can afford when purchasing a franchise.
If you feel ready to start your franchising journey to get the career you’ve always dreamed of; then we want to help. Once you find a company you are interested in franchising for, reach out to us to request more information.