Starting a new business is fun, exciting, and a little scary. Learning how to franchise a business is all of those things too, but running a franchise is a bit different.
Franchising is a good option for anyone who wants to start a business without having to go it alone. When you franchise a business, you own and operate it, but you use another company’s brand name and products. Popular franchises include nationally recognized names like Marriott, Hertz, and Subway.
Think you might want to start a franchise? Read on.
Why you should consider franchising a business
Franchising is a tried and true business model that lets you tap into an existing customer base while following your entrepreneurial passion. By opening a franchise, you are able to employ people in your community while supporting yourself and your family.
The pros and cons of franchising
Franchising comes with its advantages and disadvantages. Let’s start with the pros. The benefits of franchising a business include:
- A proven business model
- A well-established customer base
- Access to support from the corporate office
- Existing brand recognition
Some of the cons associated with franchising include:
- Having to represent the brand and the company according to your contract
- Less flexibility for vendors
- Paying royalties on the brand
- Some franchise start-up costs are high
A 10-step guide on how to franchise a business
1. Decide which franchise you want to operate
You can start a franchise in most industries from hospitality to entertainment. Restaurants and stores might be the first businesses that pop into mind when you think about starting a franchise — but you can operate most types of businesses, including art studios, education, healthcare, and many others.
If you already have a business in mind, or at least a general field, do some research about available franchises. Then research the company and pick one that aligns with your personal values and your overall business goals. Consider your strengths and weaknesses, previous experience, and your investment budget. Narrow down your top choices and research them to find the one that fits you best. If you can, talk to other franchisees to get a sense of what to expect.
2. Do your market research
Just because a franchise comes with built-in brand recognition doesn’t mean there is a need for the business in your area. Basic market research helps you make sure there is a need for your business. Look at the demographics in your area including household characteristics, income levels, age, marital status, and employment.
If you live in an area with a lower median income and low tourism, your high-end hotel franchise probably wouldn’t succeed. Make a list of the top competitors in your area for a more realistic picture of the need for your business. Knowing your competition also helps you choose a franchise with the best unique selling point in your industry.
3. Calculate the costs
Once you’ve narrowed down your focus and put together a list of franchises that fit into your goals and your market area, research the costs associated with starting your business. Depending on the brand, start-up costs can range between $50,000 to upwards of $1 million.
Even when you know how to franchise a business, you might not consider all your up-front costs. You might be able to get a small business administration (SBA) loan or other financial assistance, but it’s best to start your business in the right direction by sticking with start-up costs you can afford.
You may also be responsible for your own equipment and supplies. When you’ve narrowed down your franchise choices, look through their guides to get a sense of what you’ll be expected to buy out of pocket. Talk to other franchisees and see what they needed to buy before they opened. Look at commercial real estate sites to find out rental rates in your desired area.
Having a realistic idea of your start-up costs will help you save money or apply for financing that covers everything without putting you in too much of a financial hole before you’ve even opened your doors.
4. Start an LLC
Being an entrepreneur comes with different tax challenges than those associated with traditional employment. Setting up a legal entity for your business offers legal and tax benefits that you might not be able to get as a sole proprietor.
Starting a limited liability company (LLC) or another type of business entity helps protect your assets if someone sues you, you go bankrupt, or other tricky situations arise. You don’t have to have a franchise agreement in place to form your business. Pick your name, choose a registered agent, and file the required documents with your state.
5. Write a business plan
As you may have guessed, you’ll probably need to get a small business loan to start your franchise. Having a solid business plan will help you show your vision to potential lenders, proving your case on why they should work with you to fund your new business.
Additionally, most franchisors require applicants to submit a business plan before they approve your franchise. Knowing how to franchise a business can help guide you. In your business plan:
- Introduce the company
- Define the product or service
- Include your preliminary market research
- Describe how you will manage the business
- Introduce the management team
- Include your marketing plan
- Estimate your financials
Don’t assume that potential lenders are familiar with your franchise brand unless you’re working with a large global company like McDonald’s. When you’re describing the company and its products, pitch it like you would if you were starting a new business from scratch.
Your business plan should prove to lenders that you’re credible and likely to launch a successful business. Include any information that backs this up like your previous industry experience and thorough market analysis. While you want to be optimistic, stay conservative when estimating your revenues.
6. Fill out your application
Most franchisors require potential franchisees to apply. You probably won’t be able to just submit the application and start your business. It takes time for franchisors to consider each application and decide who would be right to operate one of their businesses. It’s their brand reputation on the line, so they want to make sure the partnership is mutually beneficial.
Once the franchisor has reviewed your application, franchise disclosure document, business plan, and other required information, they may ask you to come in for an interview. Or, they might just approve you for a franchise.
7. Choose a location
When you’ve been approved, look for a location. When you did your market research and business plan, you probably got a sense of where you wanted to open. A large part of how to franchise a business is picking the right location.
Research new developments in the area and look through commercial real estate listings to find open spaces. Look for a spot whose demographics align with your potential customers. Consider rents and potential competition in the area as well.
You might want to open a coffee shop in a busy downtown area with a high weekday population. These spaces tend to be more costly, so come up with more than one option in case any of them don’t work out.
8. Start training
Once you’re approved to open your franchise, you will likely be trained by a franchisee relationship manager or someone else from the corporate office. At the least, you should be given access to all corporate rules and expectations for franchise owners.
Make a list of questions to ask during training and start off strong. You might ask about marketing and promotional resources, management and hiring, and other operational basics that can help you succeed. Most franchisors have solid guidelines for signage, branding, and marketing.
Ask about how to set up a social media presence for your particular franchise location and other local marketing strategies you can use to create a buzz in your neighborhood.
9. Hire your employees
Even if your franchise is on the smaller side, you’ll still need some help running it. When you’re training, ask the corporate office for tips on interviewing and hiring the best people for the job. Start posting ads in your area on local job boards, LinkedIn, and other sites.
The franchisor will probably give you hiring materials including job descriptions, pay rates, and more. During your training, ask questions about benefits and other potential recruiting tools. You might be required to pay for these yourself, which would impact what you are able to offer.
If you need to hire a lot of people, consider exhibiting at a job fair or recruiting on college campuses and other places with large groups. You can conduct group interviews to save time. Look for people with similar experience, and hire some management assistance if you want some help with daily operations.
10. Open the door
If all goes well, you’re ready to open. Use the corporate marketing guidelines to start targeting potential customers in your area. You’ve probably been putting out flyers, social media ads, and other messages to let people know you’re coming.
Host a soft opening to train your new employees and introduce your new business to the area. Collect emails from people who come to the soft opening and use email marketing automation to grow your franchise. Invite people to your grand opening by offering a special discount on opening day.
Your franchisor might already have standard promotions they run whenever someone opens a new franchise. Tap into their national resources including their marketing team to spread the word about your new business.
Key tips to remember
Know yourself
Franchising a business might not be right for everyone. Before going through the process, assess your personality. If you’re the kind of person who thrives with clear processes in place, a franchise could be right for you. These businesses come with a set standard and rules you can follow.
If you’re a more independent and creative person, you might be more successful starting your own business. It takes more effort to build a brand from the ground up, but starting your own business gives you much more flexibility.
Tap into your passions
Whatever your reason for starting a franchise, you’ll likely be more successful if you like what you’re doing. Choose a business that aligns with your passions, experience, and interests. Already having a background in your chosen business will help you think of marketing strategies to get people in the door.
Know your strengths
If you hate sales, you probably won’t like a business in which you need to generate and follow up with a lot of leads to stay in business. You’re more likely to be successful with a wellness business or a restaurant for which you can host events and other promotional events.
Talk to other people
If you’ve never operated a business, join a franchise owners’ group on LinkedIn, or find conferences and other events. Ask questions about business operations, barriers to opening a business, and challenges that come with running a franchise.
By tapping into a network of people who have been there, you can more accurately assess your strengths, weaknesses, and concerns. Starting a franchise is a big investment, and you should know what to expect.
Where to start when franchising a business
If you’re ready to put what you’ve learned about how to franchise a business into practice, owning a franchise might be right for you. Start by making a list of your experience, interests, and passions. Then look for franchise businesses in your chosen field. See what’s available and look through franchisee requirements.
Find a business that aligns with your goals and your personality. Get a sense of start-up costs, and figure out what you can realistically afford. Once you’ve narrowed down your preferred brands, you’ll be ready to apply for a franchise and open your doors to new customers.
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