How to Start a Franchise: Step-by-Step Insights for Entrepreneurs (2024)

If you want to own a business but don’t know where to start, franchising might be a good option for you. Instead of developing an entirely new business idea, you can open your own local branch of an existing business as a franchise. Here’s how it works:

What is Franchising?

Franchising is a system in which an individual (called a franchisee) purchases the right to use the trademarks of a company (the franchisor). A franchise agreement usually includes not only the trademark but also the plan and method for operating the franchised business.

“It’s a playbook that includes the systems, processes and marketing that the franchisor puts together.” Teri Villanueva“Then the owner comes in and executes the model that the franchisor has already created,” said , a franchise consultant at FranNet.

Benefits of Franchising

When you open a franchise, you are setting up your own business, but in a much better position and with more support. Some of the benefits of opening a franchise include:

Brand awareness

Unlike starting a business from scratch, starting a franchise usually requires the participation of an established Brand awarenessEveryone knows that McDonald’s golden arches mean cheap burgers and fries, and the blue and yellow IKEA sign means affordable Swedish furniture.

Franchise owners are often willing to pay a premium to partner with a successful, well-known brand.

Support and training

Before you open your franchise, you will receive extensive training on how to operate a franchise. Franchising requires consistency, so it is in the franchisor’s best interest to teach you how to run the business.

That kind of support is hard to find in the competitive world of solopreneurship. Teri says franchising is especially appealing for people who are used to being part of a larger organization. “When you leave the military or corporate America, you miss the camaraderie you had,” Teri says. Joining a franchise gives you the opportunity to network with other franchise owners at trainings, meetings and more. “You really support each other,” she says.

Ease of obtaining funding

One of the hardest parts of starting a new business is securing financing. “When you’re starting from scratch, you don’t have any track record that a bank can look at,” says Teri. With a franchise, your chances of getting approved for financing are Small Business Administration (SBA) Loans Or, other financing is higher because the franchisor’s model has already proven successful.

Disadvantages of franchising

As franchisors want to expand their business and collect royalties, they may downplay some of the downsides of franchising. These include:

Financial Risks of Owning a Business

Like any business, opening a franchise involves financial risk. Although franchisees operate under the franchisor’s name and business model, they invest their own capital. If the business fails, the franchisor will not bail them out.

What happens if the franchisor goes bankrupt? Varies depending on franchise agreementHowever, it’s possible for the agreement to be voided, and you’ll have to figure out what to do next. We recommend having an attorney review your franchise agreement before you sign anything.

Limited creative control

If your reasons for becoming a business owner include expressing your creativity, franchising may not be for you.

“Some people might not like the franchisor deciding what products or services to sell,” Teri says, “so they can’t say, ‘You can add this to your order, or I’d like to add this service.'” In other words, you need to be comfortable selling the goods or services as is, without much of your input.

Royalties and franchise fees

To start a franchise, you’ll need to pay an initial franchise fee to the franchisor. You’ll also need to pay ongoing royalties, which can eat into your profits.

Seven Types of Franchises

1. Business services
2. Commercial and Residential Services
3. stay
4. Personal Services
5. real estate
6. restaurant
7. retail

When people think of franchises, they often think of McDonald’s or other fast food chains, but franchises are much more than just restaurants. International Franchise Association According to the (IFA), there are approximately 806,000 franchisees across a variety of industries in the U.S. The IFA categorizes franchises into seven business areas:

1. Business Services

Business service franchises exist to help other businesses run smoothly or to make things easier for consumers. These include accounting and tax preparation franchises like H&R Block and delivery franchises like The UPS Store.

2. Commercial and residential services

This category includes services required to build, renovate, and maintain homes and business premises. These franchises may or may not have a physical location and typically require equipment such as trucks and tools.

Cleaning services like Molly Maid, plumbers like Mr. Rooter, and pest control companies like Orkin are all franchises. This category also includes construction and remodeling businesses like California Closets.

3. Accommodation

Lodging franchises range from campgrounds like Kampgrounds of America (KOA) to hotels like Days Inn. These are often some of the most expensive franchises to open due to their large real estate footprint.

4. Services for individuals

Personal services include everything from education franchises like School of Rock to gyms like Planet Fitness, workout studios like Pure Barre, and spa services like NOW Massage Boutique and Drybar.

5. Real Estate

Some of the largest companies in the real estate industry are franchise companies such as Re/max, Sotheby’s International Realty, and Corcoran Group. The real estate industry also includes property management and home inspections.

6. Restaurants

When you think of franchises, you probably think of fast food chains like Subway. And there’s a reason for that: McDonald’s is the largest franchise in the U.S. by sales. $118 billion Subway will have the largest global sales in 2023. (Subway is the largest franchise system by number of stores.)

Quick service restaurants (QSRs), which are restaurants that do not have a full dining area, are not only the largest franchise industry, but they are also growing. By 2023, 21% of new franchise concepts The line was a QSR.

Restaurants that offer table service are called full-service restaurants (FSRs) and include establishments like California Pizza Kitchen, the Counter, and Ruth’s Chris Steak House.

7. Retail

Retail Franchise Selling merchandise. This business line includes retail bakeries like Nothing Bundt Cakes, grocery stores like Grocery Outlet, furniture stores like Relax the Back, IKEA, and La-Z-Boy, supplement stores like The Vitamin Shoppe, florists like 1-800-Flowers, and second-hand stores like Plato’s Closet.

How to Start a Franchise

1. plan
2. the study
3. Commit to the territory
4. Participate in training
5. Setting protocols for a smooth opening

Starting a franchise is different from starting your own business from scratch. Here’s how it usually works:

1. Planning

Decide what you want to get out of the franchise. “Everyone has different motivations,” Teri says. “I always ask, ‘Why do you want to run a business? What do you want it to bring to you and your family?'”

Narrow your options by asking yourself practical questions:

• How do you plan to finance your franchise?

• What is your net worth and liquidity (this will determine if you meet the franchisor’s specifications)?

• How long do you want to own the franchise? (Franchise agreements usually have strict rules about how a franchised business can be sold.)

2. Research

Once you know what you want from a franchise, you can start comparing your options. Teri says the research process takes potential franchisees about 60 to 90 days. Information comes from three main sources:

• A Franchise Disclosure Document (FDD) is a publicly available legal document that provides information such as the franchisor’s financial situation and franchisee expectations (including franchise fees and royalties).

• Conversations with franchisor representatives

• Ask current franchisees about their experiences

3. Commit to territory

Once you have decided on a franchisor, the next step is to pay a one-time franchise fee to secure a franchise location. Franchisees cannot open locations just anywhere. Franchisees decide which territories are open to new franchisees and divide those territories into exclusive territories to prevent market saturation.

“Once you commit to a territory, it’s yours and no one else can get in,” Teri explains. Real storeA physical location will be within the boundaries of a jurisdiction, or if we do not have a physical location, we will provide services within the jurisdiction.

4. Attend training

The length and format of your training will depend on which franchise you are opening. Training may consist of online courses or in-person training at a headquarters or regional office.

Terry says one of the biggest misconceptions about franchising is that franchisees need to have industry experience. “[The franchisor]trains you on your specific industry, how their model works and how it works most efficiently,” Terry says. “So you don’t need experience. You’re paying for support from the franchisor.”

5. Set up protocols for a smooth opening

If you have a brick-and-mortar business, you will need to find a location and build out your space. In some cases, your franchisor will help you choose a location. Others may require you to purchase a location that they have already selected and built.

If your business doesn’t have a physical location or operates from a small office, you may be able to open sooner.

You may also need to purchase equipment, such as a van for a mobile pet grooming business or a carpet cleaning machine for a rug cleaning business, while a franchise such as a travel agency may require little more than a laptop and a phone. The franchisor may require you to purchase equipment and materials from specific vendors.

Once you start your business, the hard work begins. “Even though the system is built for you, you still have to go out and promote your business,” Teri says. “You have to hire the right people. You have to spend money on marketing and things like that.”