Franchising ownership offers a unique path to starting a business, one that involves paying a royalty and initial fee for the right to use a pre-existing brand and business model. However, this option requires a substantial upfront investment, making it important to weigh the pros and cons before making a decision.
To help you in your decision-making process, here are some key factors to consider:
Franchise Ownership Pros
- You’ll benefit from a ready-made corporate framework
- Established brand and operating procedures
- Access to an existing customer base
- Robust marketing support from the franchisor’s headquarters
- Training provided by the franchisor prior to opening
Franchise Ownership Cons
- Requires significant initial capital investment
- Lack of flexibility in running the business
- Ongoing franchise fees payable to the franchisor
If you’ve made the decision to launch a franchise, these steps will guide you towards realizing your dream.
Step 1: Choose Your Franchise
Industry and Location
Narrow down your search by selecting an industry or sector that ignites your interest and aligns with your skills. For example, food, beauty, home services, real estate, hospitality, and fitness are some of the options you could consider. Then, zero in on the area that you’re most drawn to and evaluate franchise opportunities within that domain. Remember that your location is also an important factor. Some franchises may not have opportunities in your area, so make sure to consider this when making your choice.
Upfront Costs and Ongoing Fees
Franchise ownership can be costly, and you need to determine your budget and net worth to understand what franchise you can afford. Different franchises come with varying costs, and more established ones can require a larger investment. Start-up franchise costs can range from $20,000 to $1 million, depending on the brand and real estate requirements. You can find some information about upfront costs on the franchise’s website, but don’t hesitate to reach out to the company for more details. You should also research the royalty fees, which can be found in the franchise disclosure document (FDD). Be thorough in your research and ask questions if anything is unclear. Additionally, don’t overlook the substantial, yet often under-emphasized, costs involved in areas such as marketing, promotion, signage, inventory, and ongoing costs.
Some franchises require personal qualifications, such as a good credit score, net worth, available capital, and industry and management experience. Before moving forward, make sure to meet the qualifications and be prepared for the necessary investment. The franchise’s website or direct contact with the company can provide information about these requirements.
Franchise Reviews and Personal Experience
You can use websites like the Better Business Bureau and Franchise Business Review to read reviews from franchisees and get a sense of their experiences. For a more personal experience, attend a “discovery day” with the franchise you’re interested in. During these events, you’ll get to spend time at the corporate headquarters or an existing franchise location and get a feel for the operations, corporate culture, requirements, and daily routine. Use this opportunity to make a positive first impression with the franchisor. If after the discovery day, you feel the franchise isn’t a good fit, listen to your instincts and move on as there are many other profitable franchise opportunities available.
Step 2: Finance Your Franchise
You’ve found the perfect franchise and now it’s time to secure the funding to make it a reality. But with the high upfront investment required for franchising, financing your business can feel overwhelming. Don’t let the costs hold you back! There are multiple financing options available to help you access the capital you need to launch and grow your franchise.
Maximize Your Financing Potential with Equipment Financing
This is a popular financing option for franchisees, giving you the ability to secure funds for essential equipment such as commercial ovens or ballet barres.
Traditional Business Term Loans for Lump Sum Capital
Unleash your business potential with traditional business term loans, providing you with a lump sum of capital to spend as you please. With repayment terms typically ranging from 3 to 5 years and monthly repayments, this option can help you finance your franchise goals.
Flexible Financing with a Business Line of Credit
With a business line of credit, you have the ability to access capital as you need it, whether it’s for large purchases or smaller expenses like marketing. And the best part? The loan is “revolving” meaning once repaid, you can access the full amount of capital again. This flexible financing solution could be a game-changer for your franchise.
Competitive Interest Rates and Long Repayment Terms with SBA Loans
Guaranteed by the U.S. Small Business Administration, SBA loans offer attractive interest rates and long repayment terms. Explore the popular SBA 7(a) loans for working capital or SBA 504/CDC loans for large fixed assets like real estate. However, these loans can be difficult to qualify for and may not be available for first-time business owners. But, if you have a successful track record, don’t miss out on this incredible financing opportunity.
Don’t let financing hold you back from realizing your franchise dreams. Evaluate all of your costs, including startup expenses, ongoing costs, franchise fees, royalty fees, and real estate fees. With the right financing solution, you can unlock the power of franchise ownership and take your business to the next level!
Step 3: Finding the Perfect Franchise Location
When it comes to setting up your franchise, the location you choose is key to its success. Whether you opt to rent or purchase a building (most franchise owners choose to rent at first), or run the business from your home if it’s not customer-facing, you’ll want to make sure you’ve selected the right spot.
Here are three crucial elements to keep in mind:
- The environment – Evaluate the neighborhood and surrounding businesses. Are there opportunities to attract your ideal customer base? Keep in mind the competition as well. Too much of it could prove detrimental to your success.
- Foot traffic – Does the area you’re targeting have a reputation for driving customers to franchises like yours? You can determine this by manually counting the foot traffic in the area for a few hours.
- Accessibility – Consider how easy it is for customers to reach your franchise. Is it conveniently located near public transportation or does it offer ample parking options? Remember, accessibility is an integral part of the customer experience.
It’s important to note that you might want to finalize your location before seeking financing, as some franchises may require it.
Step 4: Your Franchise Agreement: Examine and Seal the Deal
Ensure to clear up any discrepancies between what you agreed upon verbally with headquarters and what’s written in your agreement. The written agreement takes precedence in case of any disputes.
A startup lawyer’s expertise is crucial in this step, and if you haven’t secured one yet, it’s high time you did! Don’t miss this opportunity to protect your interests and secure the success of your franchise.
Step 5. Become a Franchise Pro through Corporate Training
Embrace the opportunity to be a franchise pro by participating in both regional and national training sessions. The investment in training is crucial for your business to succeed and thrive. Some franchises even provide virtual training to make it more convenient for you. These sessions are tailored to equip you and your employees with the necessary skills and knowledge to operate your franchise effectively. It’s also vital to keep up with the latest advancements in products and technologies, as well as enhancing your management skills through ongoing training programs. Staying ahead of the curve sets you apart and ensures the long-term success of your franchise.
Step 6. Launch Your Franchise
With some franchises, you’ll continue to receive mentorship and training from the franchisor, allowing you to become a seasoned business owner in the long run.