For those individuals who are looking to own their own business, franchising presents a very unique opportunity. Under this model, entrepreneurs can become business owners, while avoiding having to create an entirely new venture all on their own. And yet, while purchasing a franchise can be an enticing economic opportunity, many people just don’t know where to start.
We’d like to make the process a little less mysterious -- here are a few quick tips for those looking to purchase their first franchise:
Choosing a franchise to buy
The first, and perhaps most obvious thing to do, is to decide what kind of franchise you’d like to own/operate. This can usually be done by simply looking at your qualifications, interests, budget, and the opportunities available. Take the time to consider the money or assets you have available – this will be important when it comes to funding your franchise. Additionally, think about the experience you have and how it relates to the franchise you’re interested in. This includes any experience at a managerial level, the industry experience, and financial experience too. Companies who franchise are also making an investment in you, so they’re going to want to see that you’re financially stable and that you have the experience to keep a business moving. Once you’ve thought about your experience and financial picture, you can start looking for available franchise opportunities.
After you’ve honed in on a few potential opportunities, begin to fill out their applications. This is how businesses will sort through anyone interested in franchising with their company. If you meet their initial requirements, you’ll be able to move forward and set up a meeting with the company for more information.
Review the Franchise Disclosure Document (“FDD”)
If a company determines you are good fit, you will eventually receive a Franchise Disclosure Document, or “FDD”. FDDs are not only generally required by law, they are important to understand the picture of the Franchisor and the franchise system. Review this document carefully! A franchise lawyer can help you review this document as well. Don’t be surprised if anyone who is helping you finance your franchise also wants to see the document, too. This document provides a lot of information to potential investors about the state of the business, costs, and growth plans. FDDs should also include other franchisees’ contact information. Take a little bit of time to reach out to them and find out how their experience has been. This is a great chance to see inside the potential experience you could have.
Understand your franchise investment
When meeting with the company you’re interested in, ask questions. Focus on their growth plans and make sure you’re not being promised something they refuse to put in writing. Get to know the management team well and understand that they will be asking you more questions, too. The decision to franchise is between you and the company, so they’ll want to make sure you’re a good fit for their business. Make sure you understand the investment on your part: not just the initial fees, but also ongoing fees, royalties, and anything you’re expected to contribute regularly to maintain the franchise. Once both you and the company decide everything is a good fit, it will be time to sign the franchise agreement. We highly recommend you do not enter any agreements without proper legal review, counseling and, where possible, negotiation. This is a way to be sure everyone knows what they’re agreeing to and nothing has been left out of the document.
Often, you will also need to find financing for your new franchise. The most obvious choice for financing is a bank loan or Small Business Association loan. Generally, because franchises are established business and brands, these loans can be easier to obtain than an independent small business loan. Another common option is franchisees rolling their retirement over for startup funds. Additionally, some franchises offer financial assistance to help franchisees get started. Be aware that depending on the type of franchise you purchase, there may be considerations for construction or equipment financing required.
Once financing is secured, it’s time to choose a location (if one hasn’t already been provided or exists). Often times, the company will provide guidelines for the type of location to look for. But consider the type of business you’re running, traffic to the area you’re considering, and the pros and cons of renting vs. buying a space to operate in. Take the extra time to read all agreements carefully and don’t be afraid to negotiate. Again, this is a great place for a franchise lawyer to offer guidance.
Training and planning for growth
While your business space is taking shape, you will likely need to also focus on training and preparing for opening, as often dictated by your franchise agreement. Usually the company you’re franchising will have training through them. This will help you understand their business practices, marketing strategies, and any operations they want you to be aware of. Be sure to focus during your training and get the most out of it so you’re as prepared as possible to run your business when you return home. When all of the training is through, the fun part begins: planning your grand opening and growing your business. Your grand opening is a great way to establish a client base, open your doors and celebrate!
Although it might seem daunting at first, becoming a franchise owner can be a wonderful way to build your future. Start at the beginning and take your time working through each step. No one can guarantee a perfect business, but setting yourself up right is certainly a key component for success.