If you’re thinking of starting a franchise, you’re probably thinking of becoming a franchisee. That is, you want to become a small business owner by franchising under a large corporation.
As you probably know, a franchise is a business model and a brand—and when you become a franchisee or franchise owner, you’re signing a franchise contract and putting down a lot of money for the right to use that business model and brand.
Franchise brands are everywhere. If you have a favorite burger joint that you can go to in cities around the country or world, that’s almost certainly a franchise. In other words, instead of being owned by a corporation, individuals own and operate one or two or several of those burger restaurants.
Understand the Available Franchise Types to Start a Franchise
But besides restaurants, “There are over 4,000 franchise brands out there. That's more choices than there are stocks on the NASDAQ or the NYSE,” says Kenny Rose, the founder and CEO of Semfia, a Chicago-based franchise consultancy that caters to people who want to invest in franchises.
For example, if you were so inclined, you could buy a franchise in some of the following industries:
- fitness centers
- business service providers
- consumer service, like a phone repair franchise
- home services, like an exterminating company
- automotive repair
- commercial and residential cleaning services
- dry cleaners
- home health care providers
- pet-care providers
- education and tutorial services
- tax preparation services
- convenience stores
- travel agencies
- real estate agencies
- entertainment franchises, such as escape rooms or places where you paint and drink wine
Corporations tend to start franchising when they want to expand the business and spread the financial risk that comes with expansion. People who buy a franchise pay good money to do that. If you’ve been wondering how to start a franchise, here are some of the steps to consider.
Steps to Start a Franchise
It can be overwhelming thinking about how to start a franchise. There’s a lot to do, from creating an LLC to a business plan, but it’s not as if you have to do everything at once.
If you’re interested in owning a franchise, you’ll want to do the following.
Step 1: Research your options.
In a way, this is the most fun part of the franchising process because you’re just looking on the internet, daydreaming about your business and typing in search engines phrases like “how to franchise a business” and “entrepreneur jobs” and seeing what comes up.
There are numerous franchise websites where you can research what’s out there, and you really never know what you’re going to find or where you’ll end up.
Step 2: Select a franchise that aligns with your business goals.
As you’re researching your options and you get more serious about owning a franchise, you may want to bring in a professional to help you. There are franchise brokers, franchise coaches and even franchise coaching services, some of which are franchises themselves.
But those professionals, some of whom aren’t paid by you but by the franchisor for finding the right franchisee, can really help you figure out the right franchise opportunity. And a franchise really needs to be a good fit for you. You may feel like you have the experience to run a franchise, but ideally, you also want to be interested in what your business produces.
“You will be all-consumed for a while as you get your business up and going. You must enjoy it! So do something new, but at least picture yourself liking it before jumping in,” advises Brant Wilson, the president and COO of Palm Beach Gardens, Florida-based TBC Automotive Operations at TBC Corporation. (TBC Corporation owns the franchises Midas and Big O Tires.)
Step 3: Create an LLC or a corporation.
Many franchisors prefer to work with a corporation or LLC, so if you’re going to be owning a franchise, you’ll want to do this.
There are other reasons too: You're forming a company so it’s your business that's buying the franchise and not you. It may seem like semantics, but from a legal standpoint, you’re separating your personal assets from your business liabilities.
Step 4: Arrange financing.
Before you get in too deep, it's worth looking into financing. “When it comes to funding it's always important to get pre-qualified just like buying a home. Most people don't get pre-qualified before they start researching because they're still exploring the idea of franchising,” Rose says.
How much money do you need to start a franchise? In general, a prospective franchise owner should have at least $50,000 in liquid assets, a $150,000 total net worth, and a 680 credit score, Rose says. (Rose suggests talking to a lender that specializes in franchising when you're 100 percent on board with owning a franchise.)
That said, there are some franchises that specialize in people who don’t have a lot of access to funds. You may find a franchise you can run from your home office, which would help cut down your startup costs.
There are a lot of ways to find funds for your franchise, from commercial business loans to lines of credit. But it does help to have a healthy credit score and the type of background that gives a lender the confidence that you’re a good risk.
Step 5: Talk to the franchisors and franchisees.
When you're looking into owning a franchise, you might encounter franchisors in a variety of ways: by reaching out directly, through their website, at a franchise convention... Many franchisors even have Discovery Days, where prospective franchisees attend the company's headquarters to talk with corporate executives and learn about what it takes to buy the franchise.
At the Discovery Days for Midas and Big O Tires, prospective franchisees “meet executives from operations, marketing, real estate, IT, product management, training and other organizations that will support them each day as their franchisor,” Wilson says.
But you should also make room in your schedule to talk to individual franchisees, the people who were once like you—looking in from the outside and wondering how to start a franchise. “Talk to them about their relationship with other franchisees—it’s great to have a culture where they get together regularly to share with each other," Wilson says. "Talk to them about the franchisor. Let’s face it—no franchise system is perfect. But get all the info you can to make the best decision.”
Step 6: Talk to members of your community.
If you’re thinking of buying a franchise in which you will have a brick-and-mortar location somewhere in a city or town, you really should think about whether your community needs another pizza delivery service, fitness center or car maintenance garage. It may not be the franchise you’re interested in, but what your town may need could be a hardware store or pet kennel.
If nothing else, if you start talking to people about the franchise you’re considering buying, you’ll start drumming up some early enthusiasm from members of the community, who may have connections that you can use later in getting your business off the ground.
Step 7: Create a business plan.
Even if the franchisor’s business model and business plan works, you need your own business plan, too. After all, you’re going to want to hit certain money milestones every year, and you are going to want to have a sense of how much you want your business to grow over the years.
It helps to get everything documented to try to see if what you're envisioning really is practical. You also may realize, as you work on your business plan, that you are picking the wrong franchise—or maybe your business plan will help you get the financing you need to buy and fund your franchise.
Step 8: Hire professionals.
Whether you use or don’t use a franchise broker or franchise consultant to help you find the right franchise for you, at some point, you will probably want to start seeking professional help for advice beyond relying on the franchisors you’re talking to.
For instance, you might want to hire a franchise attorney—one who hasn’t been recommended by the franchisor and who will be working for you to make sure your interests are served as much as the franchisor.
Step 9: Pay attention to business compliance.
If you’re going to buy a franchise, you don’t want to wing this. Why? Because you want to make sure you really understand what you’re getting into, says Ron Humes.
The vice president of Post Modern Marketing, a marketing agency in Lexington, Kentucky, Humes has also been a realtor and owner of his own realty company for two decades. Some years back, he bought a franchise and turned his realty company into a franchise realty firm.
“Most franchises have requirements for compliance. These will include the type of space you lease or purchase, the way you decorate the space, the way you keep and report your books and the way you run your business,” Humes says.
He knew that going in, and “during the courting period with the franchise salesperson, we were promised simplicity and assistance.”
But after Humes became a franchise owner, he felt all of the rules his company had to follow were hurting his company’s productivity rather than helping it.
“Make certain you have a very good understanding of the burden that will be placed on you and your team,” says Humes. He eventually got out of the franchise contract and became an independent firm again.
“Also, be sure to get a clear understanding of your contractual obligations, rights and liberties,” he adds. “Once you sign the franchise agreement, you will be contractually and legally bound. These agreements can be hundreds of pages and are often written in [the] legal speak of franchise attorneys representing the interests of the franchisor.”
And while there’s nothing wrong with that, you may want your own attorney and other professionals, such as an accountant, representing your interests.
Step 10: Clear your calendar.
You may be interested in learning how to start a franchise so you can make your life easier—but owning a franchise isn’t easy. It gets easier, but in the beginning, it’s extremely difficult and time-consuming.
For instance, before you even start your business, you’re probably going to be doing training at the franchisor’s headquarters. And as your business ramps up, you may be spending a lot of long days and nights working. You may also have employees to hire. That, too, takes time.
Still, while franchises may not really be businesses in a box, they're the closest thing to them. As you begin the process of figuring out how to start a franchise, the more you prepare and educate yourself, the better off you'll be.
A version of this article was previously published on February 7, 2020.
Photo: Getty Images