How To Start Your Own Franchise – Opening your own franchise business is a big step for anyone choosing to start a business – and it can be very scary.
The infographic below gives anyone who takes the challenges and adventures that come with opening a franchise business a step-by-step guide to the important steps in the journey. Please note that the investment process has some changes from company to company, and the period will be different for each franchisee.
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1. Self-assessment: What interests you about opening a franchise business? Are you ready, willing and able to work long hours, including weekends and holidays (especially at the beginning)? Can you commit to following established business methods with very few, if any, changes? Can you accept payment of a portion of your profits to another entity (franchisor)? Are you comfortable with the reputation of your business based on the franchise network and not just your business unit?
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Also, how much of your personal money are you willing to contribute to setting up a business? Unless you are lucky enough to have enough money personally, will you be able to get a loan?
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2. Choose a franchise consultant to help you (optional): Despite all the information available online, it’s still a good idea to enlist the help of a franchise consultant to help guide you through the process.
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Just as a real estate agent is a good ally in buying a home, a franchise consultant has industry-specific knowledge and can relate potentially complex topics (including the nature of franchise agreements and disclosure documents) to you in a more understandable way. Franchise consultants can also prevent you from experiencing problems that might arise without their expertise.
3. Research: What types of businesses can your area sustain? Is that the type of business you are interested in opening? Federal and state governments provide free access to statistics and other information. Use the information collected to match your personal situation and the business environment of your area with the right franchise system. Common sense and your gut feeling can also guide you in thinking about the type of business that can be sustained in your location.
Once you’ve narrowed your search to a few strong competitors, request franchise applications from those franchisees. When the franchise decides that you are a good match for their system, they will send you a copy of the franchise disclosure document (FDD). FDD will provide a deep understanding of their business systems.
4. Attend a ‘discovery day’: A Discovery day is an in-depth meeting between the franchisor and one or more prospective franchisees. It can happen in the local branch of the franchise, but is more likely to happen in the company’s corporate office.
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Often, participating franchisees will see a presentation about what the franchisor can offer in terms of support, and can ask questions. If done at the corporate office, visiting departments and introducing training and franchise support staff is common.
5. Chat with other franchisees: In the FDD provided by the franchise there is a list of all the current franchisees in their system. Find someone near you and visit them. Are they satisfied with the support of the franchisee? Is the reality of the business consistent with previous expectations (financial and otherwise)? There is no better teacher than someone who is in the midst of franchise ownership.
6. Find the right location: If you’re in a low traffic area or an unincorporated area, how will you get customers? The franchisor will define the specific parameters for your territory in the FDD and franchise agreement. In addition, most franchisors help choose the location. In most cases, the franchisor will need to approve your location before you can move forward.
7. Choose a franchise and secure financing: After you’ve done your research, it’s time to make the big decision of which franchise system to invest in.
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Once you’ve decided, you’ll have all the information you need to complete a business plan and present it to potential borrowers.
There are many financing options for you to consider: bank loans, SBA (Small Business Administration) loans, HELOCs (home equity lines of credit), and more. Remember, you need enough cash reserves to cover expenses until the business becomes profitable, which in some cases can be months after opening.
8. Signing the contract: While many franchisors have strict franchise agreements, some franchisors may be flexible in negotiating the terms of the agreement.
If the franchisor is willing to negotiate certain terms, it is a good idea to seek the advice of an experienced franchise attorney to find the best solution for your specific situation.
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If the franchisor has a strict franchise agreement, there is nothing to worry about. Remember, franchising is based on a proven system and brand consistency. On the other hand, if the franchise agreement for your chosen brand is too negotiable, it may lead to a deeper investigation.
9. Obtain all necessary licenses and insurance: Each industry has its own requirements for licensing and insurance. Rules by state, city, region, etc. will be different as well. Franchisors may have basic knowledge of the licenses and insurance required to operate their business systems. However, it is a good idea to check with local authorities to ensure compliance.
Two good websites to use as references for licenses and insurance that a US business may need to obtain. is small business management and FindLaw.
10. Hiring employees and participating in training: The number of employees required to run the operation depends on the type of franchise chosen.
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One of the most attractive aspects of franchising for those looking to open a business is the training component. Franchisors generally provide training, in a combination of classroom and hands-on experience, at least to franchisees and other managers. A copy of the franchise operations manual is usually also presented at this time.
11. Open your franchise business: Before opening, you need to inform potential customers about their new market options. Franchisors often have a defined process for signage, advertising and other initiatives to implement. The budget for this initiative will usually be part of the initial cost mentioned in the FDD.
Some franchisors will do a ‘soft opening’ before the ‘grand opening’. A soft opening is designed to address business issues prior to the grand opening, and hopefully bring people in with the grand opening. Some franchisors also arrange to have a company trainer at the franchise location during the opening day.
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After the initial stages of starting a business, many entrepreneurs begin to consider how to scale. Franchising is one way to grow a successful operation. Read on to find out:
A franchise is a type of agreement that requires the reproduction of a successful business model across multiple locations. As a business and franchise owner, you will enter into a franchise agreement to begin the process and move toward opening a new franchise.
This agreement allows the franchisee to obtain limited rights to your intellectual property, supply chain network, training system, etc. to open and operate new locations for your business.
Franchising and licensing are two different ways of sharing your brand information in exchange for a fee. The difference between franchising and licensing centers on control and operation:
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The type of franchise that is right for you depends on the size and complexity of your business and the industry in which you operate.
Including preparation, franchising usually takes three to four months. This process can move faster depending on the complexity of your business model.
Costs for franchising vary by industry, state of residence, etc. Sometimes, the cost can be as low as $20,000, but some franchises push the cost closer to $100,000 or higher.
The Federal Trade Commission (FTC) regulates franchise operations at the federal level, but each state has its own rules and requirements for franchise operations. To make sure you don’t miss state-specific requirements, it’s best to talk to a franchise attorney who can help you prepare your state-specific documents.
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When you decide to franchise your small business, you need to be prepared to deal with new independent contractors who will run their own franchise.
Before embarking on the franchise journey, there are a number of questions you should ask yourself to ensure your business is ready for a franchise.
The answer doesn’t have to be “yes” to every question, but you should aim to give honest answers to point out possible weaknesses in your blind spots.
According to Blair Nicol.
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