If you’ve ever dreamed of working for yourself, then it might be time to join one of the 745,290 franchise businesses in the U.S. In fact, one new franchise opens every day! The following guide will give you some practical steps you can take now to learn how to become a franchise owner.
Understand the Franchise Model
A franchise is essentially a business that was created by someone else that you will license. You’ll pay to use the company’s name, products, and services, marketing concepts and technology. You won’t create a company from the ground up. Someone else did all the work for you. You’ll run it and hopefully, expand it.
There are about 3,000 different kinds of franchises, and they fall into five general categories:
- Food Service
- Personal Services
- Business to Business
- Children’s Services
This is the most important step to take, even before you get down to the nitty-gritty of purchasing a franchise. Owning a business isn’t for everyone, and it’s critical to understand if you can handle the inevitable ebbs and flows.
You’ll also want to get clear about the work environment you thrive in. For example, do you want to work from home? Do you prefer an office setting? How are you at managing people? How many people can you manage successfully?
Assess Your Budget as You Learn How to Become a Franchise Owner
You’ll need to get very familiar with your personal budget before you take on a business. How much money do you have to invest? Will you need to finance the upfront costs? Where will you get financing? Some franchises will accept part of the cost up front and will finance the rest for you.
Understand all the factors that a franchiser will consider when evaluating your application:
- Credit score
- Net worth
- Available cash
- Other income
- Industry experience
- Management experience
Understand the Costs
There are several costs and ongoing expenses involved with owning a franchise. First, you’ll pay an initial fee to become a franchisee. This fee can range from $10,000 to well over $100,000. You’ll also need money to rent or buy commercial space, office equipment, and any required licenses.
You’ll also pay continuing royalty fees to the franchiser for the right to continue using the company’s name and products or services. The royalty fee may be calculated as a percent of your earnings, or you may pay a flat fee every month.
You’ll also pay marketing and advertising fees to promote your business and the parent company. In fact, some of your marketing fees may be used for national advertising. It’s important to understand what advertising your franchise will get for your money.
The internet is a great place to start when you’re looking for franchise opportunities. You can easily find lists of franchises arranged by name, business type, and geography. It’s important for you to study markets trends to understand what types of businesses are doing well or are likely to do well in the future.
You’ll want to know if a business model is really successful or if it’s just trendy at that moment. You may discover the business you’re interested in has experienced falling sales recently. You’ll also want to study the market in your area. For example, you may want to run a coffee shop. But if the market in your town is saturated, you’ll have a lot of competition right from the start.
Talk to Franchisees
Stop by a store and talk to the franchisee. Ask a lot of questions! For example, you might ask what she likes most about the business? The least? What is the franchiser like to work with?
Attend a franchise exposition. This is a great way to see a lot of businesses at one time and talk to the people who represent those businesses. If you’ve already picked out the industry you like, visit with franchisees from several companies.
You can also work with a franchise broker who will help you find a business. Be aware, though, you’ll have to pay for the service. You may be able to find a franchise on your own just as easily.
Research the Franchiser
Once you have identified your target company, do a lot of research. Make sure the company has a good reputation. Pay attention to your interactions with the company. How do they treat you? Is their customer service helpful? Are they responsive to your questions?
Read the Fine Print
Once you’ve selected your franchise, and you’re ready to commit the money and the time, you’ll want to read all the paperwork very carefully. You’ll receive something called the Franchise Disclosure Document (FDD).
Under the Franchise Rule enforced by the FTC, you must receive the document at least 14 days before you sign a contract or pay any money to the franchiser. The FDD contains 23 specific pieces of information about the franchise, its officers and other franchisees.
The franchise agreement will also include the length of the agreement, the renewal provisions and the end of the contract. You might want to consider hiring an attorney to review the agreement with you.
Attend Discovery Day
This is a time set aside for you to meet the franchiser’s executive management team, typically at the corporate office. This is a great opportunity for you to get to know the company culture and see for yourself if it’s a good fit for you.
Again, pay close attention to more than the business side of the franchise. It’s also important for you to study the intangibles. How are you treated? Do they answer your questions willingly? What kind of support can you expect to receive from the corporate office once you open your business?
Wrapping It Up
Owning a franchise provides people just like you with the chance to run their own business. Depending on the franchise you choose, you can set your own hours, hire and train your own staff and run a business with a lot of support. It’s a good time to learn how to become a franchise owner because the industry grew by 3.8% in 2018.
If you would like to learn about franchise opportunities with OpenWorks, please contact us for more information.