The decision to pursue opportunity through franchising is life-changing and investing in a franchise requires thoughtful consideration. As a resource for aspiring business owners, the International Franchise Professionals Group (IFPG) is designed to guide those who are looking to invest in franchise businesses. Our membership-based franchise consulting network has more than 1,300 franchisors, franchise consultants and vendor members, all of whom are dedicated to helping those seeking to make their entrepreneurial dreams come true.
Many potential entrepreneurs, especially those recently laid off from corporate positions, may have questions about franchise investment. To help them make an informed choice, we have answered the 12 most frequently asked questions about the franchise investment process.
1. How much money do I need to own a franchise?
The amount of investment required to purchase a franchise varies widely. Most franchises require a total investment that falls somewhere between $50,000 and $500,000, depending on the type of business and size of the outlet or location. Financing options are most commonly available from the franchisor itself, with payment options ranging from traditional loans to royalty-based payments. Keep in mind, however, that these financing options may require a downpayment of up to 20 percent of the total investment and may not cover all start-up costs.
2. Are there any tax benefits associated with owning a franchise?
Yes. There are numerous tax benefits available to franchise owners. These include deductions for home office and business travel expenses, as well as depreciation of long-term assets such as equipment, furniture and fixtures. Additionally, entrepreneurs may be able to deduct the fees associated with purchasing a franchise or renewing an existing franchise agreement. It is important to speak with an experienced tax advisor to explore all available tax deductions and ensure that taxes are paid correctly.
3. How do I select the right franchise for me?
Choosing the right franchise requires careful consideration of a wide range of factors. It is important to choose an industry that appeals to you and one in which you have, or can develop, the necessary skills. Additionally, you should assess whether the business has the potential to be profitable in your region and your financial situation. Researching the franchise opportunity from every angle is key to helping you select the right franchise. The IFPG has tools and resources to assist with this process.
4. What is the difference between a franchise and a business opportunity?
A franchise is a formal agreement between a franchisor and a prospective franchise owner, while a business opportunity typically involves a less formal contract. Franchising includes many protections and support services for the franchisee, such as training, operational guidance, marketing support, and access to the franchisor’s proprietary products, services, and trademarks. Meanwhile, business opportunities may involve a one-time payment in exchange for limited services such as the right to sell a specific product or use a specific marketing strategy.
5. How long does a franchise contract last?
Most franchise agreements last from five to ten years. However, the length of time may vary depending on the type of business and the terms of the contract. Franchisors are typically more likely to accept longer contracts from more experienced or established franchisees. Renewal options and the right to transfer ownership when selling the business are other important considerations.
6. What are the responsibilities of a franchisee?
Franchisees must adhere to certain standards set by the franchisor, such as following specific operational procedures, operating under the franchise’s brand name, and meeting periodic performance goals. A franchisee must also manage day-to-day operations and be responsible for all employees, including hiring and training.
7. What types of franchises are available?
Franchises span a wide variety of industries and business models. Popular franchise opportunities include restaurants, retail stores, automotive repair services, home-based businesses, and pet services. There are even online franchises in certain industries.
8. How much control do I have over my franchise?
The franchisor has overall control of the franchise. This includes the right to approve or reject any proposed changes to the franchise agreement or the operational procedures. The franchisor also has the right to terminate the franchise agreement if the franchisee fails to comply with its terms.
9. Do I need to hire employees?
Hiring employees is the responsibility of the franchisee, regardless of the type of franchise. The franchise agreement typically outlines the requirements for any staffing arrangements, such as the specific positions needed to operate the business and the process for onboarding and running background checks.
10. Does my franchise need insurance?
Yes, it is a requirement that every franchise carry insurance. The franchisor typically requires liability insurance, which will cover all physical or financial losses resulting from legal action taken against the franchise. Furthermore, the franchisee may be required to purchase additional insurance for their premises, materials, or products.
11. What kind of ongoing support does the franchisor provide?
The franchisor usually provides ongoing support to franchisees throughout the life of the franchise. This may include operational, marketing, and training support as well as resources to help franchisees stay ahead of current industry trends. In addition, most franchisors hold frequent conferences or events to update franchisees on changes to the franchise system.
12. Is a breach of the franchise agreement grounds for termination?
Yes. A breach of the franchise agreement can be grounds for termination of the agreement. This includes failing to abide by the franchise’s standards and procedures, or failure to pay fees or meet other obligations outlined in the contract.