Business and Trade

How to Become a Franchise Owner: A Brief Guide

Ever considered starting a new business?

Before you invest everything in a new startup, keep in mind that about 50% of them fail in only five years. New businesses face an uphill battle, after all. Not only do they need to figure out business operations from scratch, but owners need to build their brand and learn how to market.

It’s safer and sometimes more profitable to become a franchise owner.

Don’t fret if the process seems confusing. There are a lot of factors to consider, but we’ve broken them down into a simple and easy-to-understand list. Continue reading our franchising guide below to learn more.

Identify Your Ideal Franchise

Owning a franchise starts by going over the different kinds of business opportunities available in your area. Do you want to focus on a franchise that sells fast food or one that offers HVAC maintenance and repairs? Will you focus on a medical franchise or home healthcare, like the one linked here?

Pick a general theme and then dig deeper for specific niches.

Is your ideal franchise all about selling clothes? Go one step further and decide whether to focus on baby clothes, women’s clothing, sexy lingerie, leather jackets, or others. There are a lot of niches and it’s likely there’s a franchise chain that caters to that demand.

This leads straight to our next tip: finding a specific franchising opportunity.

Look For Franchising Opportunities

It’s time to start choosing a franchise. Now that you’ve narrowed down your list by niche, find a directory and check the franchises operating in your location.

Always read the legal requirements for each franchise you like. Most states don’t require individual registration, but you may still need to secure an operating business permit. You may also need to secure a certificate proving you’ve undergone the franchise’s training and business briefings.

Not sure where to find viable franchises? While it’s quicker to look online, you can also find opportunities available at trade shows and business conventions. These events and conventions allow you to speak with franchisors and get familiar with their business structure.

Do a Background Check

Make it a habit to run a background check before applying for a franchise. Start by checking the Better Business Bureau. You can also inquire by calling the AAFD (American Association of Franchisees and Dealers).

These associations will help you find any controversies or issues. You never want to sign up and buy a franchise that has dirt ruining its reputation. Any kind of negative feedback could affect your profitability and marketing efforts.

Don’t stop with these two listings. Get online and look for customer reviews, especially on Google My Business and social media platforms. Watch videos on YouTube to see how people view the franchise.

Take your time on Reddit or Quora too. These forums allow people to freely discuss and you may discover issues that the franchise needs to address.

Read the FDD

Every franchise offers an FDD (Financial Disclosure Document).

This document breaks down every cost. This includes the initial net worth requirements, liquidity, starting capital necessities, and bankruptcy filing procedures. You’ll also discover the breakdown of operation and maintenance costs.

Dig deeper and you’ll also find the contact information of other franchisees. Don’t hesitate to contact them and ask about their experiences with the business and franchisor. Dig for information regarding undisclosed expenses, procedures, and penalties.

You’ll also find the information discussing which expenses fall under the franchisor’s responsibilities and which ones are yours. List these to avoid spending on things that the franchisor should cover for you.

Form an LLC

No specific franchise laws require you to secure certification. However, a lot of franchisors require franchisees to incorporate into a legal entity. It’s often a safe start to form a limited liability company (LLC).

An LLC sits between a corporation and a partnership. As a form of corporation, you have protection from bankruptcy and foreclosure. However, as an individual, you get to pass through company tax procedures and file them on your own.

LLCs also don’t have a singular business owner. The government considers this type of business as a partnership even if the LLC has only one member. Every member has individual rights and shares.

Go Over the Financial Requirements

Before you can own a franchise, you’ll need to fulfill a few financial requirements. Some franchises require a minimum net worth, for example. You might need to have a net worth of $1 million before you can even apply for the franchise.

Other franchises might require you to present a full business plan. Of course, you have to make sure your business plan collaborates with theirs. You’ll need to indicate details like your source of funding, the location for your franchise, and any backup plans in case of bankruptcy or emergencies.

Keep in mind that some franchises also require you to secure a business loan. This may be the case even if you have cash with you. Taking a loan proves you have the financial capacity to maintain and run a franchise.

Secure Financing

Do you satisfy all the requirements to apply for the franchise? You now need to secure the finances. You’ll need to start by providing the initial capital to own a franchise and to get it off the ground.

As mentioned, you can secure a business loan first. This is one of the most recommended options because it keeps every entity financially protected. However, not everyone qualifies for a large business loan.

It’s also possible to take out a loan from your retirement plan. A lot of people qualify for this since employers automatically deduct retirement payments from a person’s salary. If you’ve worked a few years, you’ll have enough contributions to qualify for a loan this way.

Don’t hesitate to try other ways of securing financing. You can sell things you don’t use, pawn a car or even real estate for cash, or seek out investors.

Read the Franchise Business Plan

Always make it a point to read the franchise start-up guide and official business plan. The start-up guide provides every step you need, from how the franchise operates to the way you’ll process revenue.

You won’t have much freedom to do things the way you see fit. If you buy a McDonald’s franchise, for example, you can’t deviate and start selling sneakers alongside every Happy Meal.

The guide will show how you’ll handle employee management, too. Remember that every franchise handles things their way and this includes how they screen new workers. The guide will also detail things like replacement or refund policies.

Franchise Application

You now need to file an official franchise application. For most franchises, it’s as simple as filling up a form and submitting it along with the usual requirements. These requirements can include a business plan, bank loan approval, and an official statement of your net worth.

From this point, it’s all up to the franchisor. Some require you to undergo a background check and interview. Others will hand you the equipment, guides, and marketing tools as soon as you can provide payment.

Secure a Location

You can’t run a franchise without securing a good location. Remember that success leans heavily on the quality of the location you pick. Owning a big franchise won’t do you good if it’s in the middle of nowhere.

Size isn’t everything. You can get a nice, big spot but this won’t mean much if it’s too far from town. Your target demographic might not know your franchise even exists because no one passes by.

Are you running a franchise that offers medical aid for senior citizens? Placing it in a bustling city center isn’t an ideal choice. Your clients would have to deal with loud noises, traffic, and city pollution.

Start Networking

You’re almost done, but now you need to make sure your franchise doesn’t sit still. Now you need to start networking with other franchise owners and small businesses. Join trade shows, conventions, and attend seminars.

Networking allows you to build your reputation as a franchise owner. You’ll learn techniques to keep your business alive without deviating from the franchise’s business plan. It’ll also help you market your franchise and you’ll learn about new technologies you can apply.

Get a Lawyer

Never buy a franchise without first asking for advice from a lawyer. You don’t need to work with one 24/7, but keep one available for consultation and advice. Let them review any contract, FDD, business plan, and the terms and conditions of the franchise.

Become a Franchise Owner Today

These are the steps you need to follow to become a franchise owner. It can seem overwhelming at first. However, following this step-by-step guide will make the process easier to complete.

But why stop with this guide when we have more lists for you to learn from? Discover other business tips and marketing techniques by reading more of our informative posts. We also have health and fitness content, providing all the tips and tricks you need.

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