Listen to this article now
If you’re looking to start a business in 2022 or beyond, you may overlook the concept of franchising. Some people state that we’ve evolved past that point due to technological advancements and globalization. Others say that owning a franchise is a business model that will stand the test of time.
The first franchise dates back to 1851 with some sources stating that they can be traced back to as early as the middle ages.
But what exactly is a franchise and how does it work?
A franchise is simply a business or brand granting permission to another business owner to sell goods or services under the brand name via a licensing agreement. This typically is an exchange of franchisee fees and royalties for the rights to the brand’s logo, business name, proven business systems, marketing methods, training, and support among other things.
The most well-known franchises fall under the fast food or restaurant industry, however, there are several franchise models in existence today operating in over 120 unique industries worldwide.
Why Start a Business Franchise?
Statistically speaking, franchises have a higher success rate than traditional businesses. This is because of their many advantages over starting from scratch. Here is a short list of the benefits and disadvantages of owning a franchise for those on the fence:
- Ongoing business assistance and support
- Lower risk due to proven in-demand businesses
- Built-in customer base
- Buying power
- Easier access to financing
- Brand recognition
- Less experience required due to training
- Higher profits (on average)
- Be your own boss
- Restrictions & regulations
- Initial cost
- Ongoing investment
- Other franchisees could affect your reputation
- Potential for conflict
When it comes to buying a franchise, typically the pros outweigh the cons. However, a successful working relationship for all parties involved depends on the personality of the entrepreneur looking to invest. If you can follow a proven system and mirror that recipe for success in your own business without conflict or the temptation to alter or change anything, owning a franchise may be for you.
If you think you know better or are constantly “bumping heads” with others in the franchise network, problems may arise. This is precisely why a lot of franchises require certain qualifications to be met before deciding to invite you into their network.
In any case, if you decide that starting a franchise makes sense for you, you’ll need to start the process.
How to Buy a Franchise – Step by Step Instructions
Since the events of 2020 and the pandemic that ensued, the global work climate has changed drastically. People are leaving their jobs in droves in search of greener pastures. This term has been coined the Great Resignation. As a result, many workers are looking to entrepreneurship as a way to earn a flexible living. Franchising is a great way to start a business and do just that.
Here’s how the process works.
Step 1: Understand Your Motives
Of the many reasons why it makes sense to buy a franchise, you need to be honest with yourself about what your reasoning may be. Some people have this idea in mind that it’s easier to follow a proven system and there’s somehow less work involved.
Regardless of whether you’re starting an independent business or buying into a franchise network, you need to understand that there will be physical, emotional, and financial challenges regardless of what path you take.
This is why it’s recommended to join a franchise network that motivates you, excites you, and that you can emotionally connect. For example, if you’re a caring and compassionate person, a homecare franchise may be a good fit.
Step 2: Research Potential Franchise Opportunities
Once you’ve got a handle on the motivation for entering the franchise market and have set realistic expectations, it’s time to enter the research phase.
Keep in mind that just because a franchise is popular, doesn’t mean it’s profitable. Alternatively, just because you’re researching a franchise that may not be a household name, it could provide the freedom, flexibility, and financial independence you’ve always dreamed of.
Remember to research franchises that align with you and that you’d be proud to own. The research process could take several weeks to several months and shouldn’t be taken lightly. Here’s a list of criteria to guide you in your search:
- Profitability. You’ll need to check sales and financial records to ensure profitability and a good return on your investment.
- Growth & Expansion. You’ll want to buy a franchise that has the potential for growth and expansion. If there’s shrinkage, that could be a red flag. If you’re entering a growing market, there may be a lot of upside.
- Social Responsibility. There is an upward trend to do business with organizations that are socially responsible. How do your potential candidates stack up in this department?
- Local Competition. Although a little competition isn’t necessarily a bad thing, you want to ensure there aren’t too many similar businesses in the area where you’re looking to start your territory. This includes local independent businesses as well. If your business category has too much supply and not enough demand, it may not be the best option.
- Return Customers. Is your franchise getting repeat business? That’s a sign that the customers or clients are happy with their product or service. If there seems to be a high attrition rate, do some digging and find out why.
- Franchise Fees. What are the investment cost and terms of the deal? You’ll want to understand these details and what you get in exchange. If it’s a respectable brand, you should be getting ongoing training, support, and assistance with marketing and promotions at the very least.
- Work Environment. Can you get a sense of the business by contacting or meeting other franchisees? Doing so can give you a deeper understanding of the brand’s culture and help you determine whether you’re cut out for this and if a passion exists.
Step 3: Complete an Application
Once you’ve found a good fit and have made the decision to proceed, it’s time to begin the application process. It may make sense to consult with an attorney to walk you through any legalese or paperwork.
Just as you researched your prospective franchise choices, the franchise team will be seeking to find a good match as well. Their considerations may include your location (to decide on potential territories), your background or experience, your financial picture, and your reasoning for selecting their company for investment.
It’s all pretty straightforward and this is a natural part of the process. Once your application is submitted, it’ll be time to move to the next step.
Step 4: Meet & Greet
Most franchise teams will eventually invite you to meet face-to-face with the team during the selection process. This meeting generally serves two purposes. It allows you to get to know the franchise on a deeper level and get a tour of the operation. It also allows you to ask as many questions as you like before making a commitment to become a franchise owner.
Step 5: Secure Financing
Each franchise has different requirements when it comes to franchise fees and financial commitments. Before you proceed to sign the licensing agreement or franchise document, you’ll need to financially prepare. This can be done on your own accord or you may seek assistance via a loan.
Generally, it’s easier to secure financing when starting a franchise since they are typically proven business models that see a return. This is opposed to traditional businesses which can be difficult to get bank financing.
Step 6: Sign the Paperwork
Meticulously review the franchise document and ensure everything is up to par. License agreements tend to be long and tedious so you may want to consult with an attorney to help you understand what it is that you’re signing. Once you’ve returned the paperwork, give yourself a pat on the back and congratulate yourself for a job well done. Most people dream of starting a business, but you just made it official.
Step 7: Finalize Your Location
You should have already discussed where your territory will be located. Now it’s time to go out and find the exact building where you will operate your franchise business. Whether you’re renting or buying, your franchise network should be able to assist with this process or at least point you in the right direction.
Step 8: Reap the Benefits
At this point, you’re the proud owner and operator of your very own business. If you’ve followed all the previous steps correctly, you should be getting lots of training and support from your network. You’re in a mutually beneficial partnership with an established brand so make sure you take this training seriously. It’s your business after all.
You want to ensure you get an in-depth understanding of all of the systems including branding, marketing, staffing, sales processes, product knowledge, and any other education you can get. The more you know, the more you, your family, and your community will reap the rewards.
Final Thoughts on Buying a Franchise
The key takeaway from all of this is that buying a franchise is a proven method for starting a business that should remove some of the risks of an individual start-up. It’s a long and tedious process. Make sure you’re doing your due diligence by thoroughly researching prospective franchises, securing financing, meeting the team, and receiving ongoing training and support.