If you’re looking to become a business owner, but don’t exactly have a great business idea, this is where buying a franchise could work for you. Unlike the responsibility of creating your own business from scratch, owning a franchise means an upfront, initial fee to operate under someone else’s business model.
Owning a franchise does not mean you created your own business, but it still qualifies you as a business owner. Ultimately, this means you’re your own boss.
If this sounds appealing to you, check out the rest of this blog on how to own a franchise and get things off to a great start.
What to Know Before Buying a Franchise
Buying a franchise is different from buying a stand-alone, independent business. Before you dive head first into this kind of investment, you’ll need to clearly understand what it means to own a franchise and operate it:
- There is a significant amount of capital you’ll need to contribute upfront
- There are always franchisor fees to pay
- You must work within an existing corporate framework that you cannot change
- You must work within pre-established operating procedures and meet the brand’s expectations
- You’re buying a business with an existing customer base
- There is already an established marketing plan in place, which comes directly from the franchise headquarters
- You’ll need to undergo corporate training before opening and operating the franchise
With these realities in mind, here are some of the important steps to take before you make your investment, as well as some crucial considerations to remember:
1. Research Before You Buy
No single franchise is the same as the next. This is a good thing because it gives you choice. But it also means that you’ll have some research to do on the best type of franchise that aligns with your interests, goals, and financial situation.
The best way to narrow down your research is by choosing an industry that sparks your interest. This industry should excite you, but also fit in with your personal skills, interests, and any qualifications you may have. Browse this list for an overview of franchise opportunities by industry.
Then it’s time to consider the location. Not every company will have franchising opportunities in your area. Make sure to keep your research localized to what’s available in your region.
2. Keep Upfront Costs and Ongoing Fees in Mind
Buying a franchise is no cheap endeavor. While buying a business, in general, is expensive, buying a franchise comes with large upfront costs, royalty fees, and ongoing costs you’ll need to research beforehand.
Your budget is probably one of the best ways to narrow down your search — you have to ensure that you have the net worth and available funding to actually afford a franchise.
Your initial investment will depend on the location of the franchise and the popularity of the market. Bear in mind that startup franchises require a downpayment of anywhere from $20,000-$1 million. This also depends on the real estate requirements and the popularity of the brand itself.
If you find a franchise you’re interested in, carefully review the franchise disclosure document (FDD). Here they should outline the cost of the royalty fees. Ask for clarification on any costs that aren’t specific enough. Bear in mind that you might have ongoing costs to pay that cover marketing, promotion, signage, inventory, and more.
3. You’ll Need to Meet Certain Criteria
The reality of becoming a franchise owner is that you’ll need to meet certain personal qualifications. Many franchises stipulate that this is a requirement, beforehand. Just a few of these requirements range from your net worth, available finances and capital, your credit score, industry experience, management experience, and more.
Most of the time you can find these criteria on the franchise’s website. You’ll need to carefully consider whether you’d be a good candidate to buy a franchise and whether you can meet any of the required criteria.
4. Do Your Homework on the Franchise
If you have your eye on a particular franchise and believe you meet the criteria to qualify, it’s important that you do your own research on what it’s actually like to own and manage it.
In other words, do your homework on what you’re getting into. The best way to do this is to research the Better Business Bureau and Franchise Business Review to get a feel for other people’s experiences. For a more in-depth, personalized experience, attend a discovery day with the franchise to help you finalize your decision.
5. Consider Your Financing Options
Once you have a good idea of the franchise you’re moving forward with, it’s time to think about financing. Maybe you have enough initial capital to purchase the franchise, but for many people, this is not quite a reality. And that’s totally okay — this is where financing can help.
Due to the large upfront investment required, here are some financing options to consider:
- A business-term loan
- A business line of credit
- An SBA loan
- Equipment financing
Don’t forget to do a thorough evaluation of all your startup costs. This generally includes opening expenses, royalty and franchise fees, real estate fees, and ongoing costs. Make sure you have a good idea of what real estate will cost you once you’ve found your ideal location.
6. Choose the Right Location
Choosing the best possible location is absolutely integral to the success of your franchise. It’s up to you whether you want to buy or rent a space (most first-time franchisees rent). Otherwise, you could run your business from home if it’s not a client-facing business.
When scouting out locations, keep these essential considerations in mind:
- Where is the retail row in your town? Where is the business center that attracts your ideal type of customer?
- Your competition — consider whether opening a franchise close to your competition is a smart idea or something to avoid
- The amount of foot traffic near your chosen location. A good amount of foot traffic increases your chances of getting people through your doors
- The accessibility of your location — how easy is it for people to get there? Consider public transport routes and available parking
Remember that you’ll probably need to finalize your exact location before you look for franchise financing.
7. Carefully Review the Franchise Agreement
When you purchase a franchise you’re entering into a formal contract. In many ways, it is legally binding. This is why it’s so important to review this document carefully. It will list your contract term, business obligations, your fees, and much more.
If you don’t know what you’re looking at, enlist the help of a business attorney to read over it and clarify anything you need, before you sign that dotted line!
Learn More About How to Own a Franchise
Becoming a business owner comes with its pros and cons. While many people find the idea of being their own boss enticing, owning a business doesn’t mean more time off or less stress. It’s important to know this before you think of buying or starting a business.
Nevertheless, if you’re keen to learn more about how to own a franchise and operate it successfully, explore the rest of this site for a plethora of business knowledge and tips.