Franchising a Business: Essential Tips on Getting Started

What is a franchise business?

A franchise business is one of the many types of business models in which an individual or company (franchisor) grants rights to another individual or company (franchisee) to operate a business using the franchisor's established brand, trademark, business model, and operational systems.

The franchisee pays an initial fee and ongoing royalties or recurring franchise fees to the franchisor in exchange for the right to use the franchisor's brand. You, as the franchisee, will also benefit from having access to the franchisor's support systems and proven business methods.

Franchising allows the franchisor to expand their business without investing a lot of capital or managing multiple franchise locations. It also allows the franchisee to start their own business with less risk and more guidance than starting an independent business.

There are many different types of franchise businesses and franchise brands. Some of the most popular types of franchises include:

• Restaurants: Fast food, casual dining, fine dining establishments, etc.
• Retail: Clothing, home goods, electronics stores, etc.
• Services: Car washes, hair salons, fitness centers, etc.

However, these examples fall under broader categories and types of franchises.

Types of franchise opportunities

There are different types of franchise opportunities that vary in terms of the level of control, investment, and involvement of the franchisor and the franchisee. Franchise owners can have a small business, a large enterprise, or anything in between. Because a franchise business often represents a scalable business model, you need to know what type of franchise you’re pursuing, especially if your goals include growth.

Job franchise

A job franchise involves a low initial investment and minimal overhead costs. The franchisee typically works from home or in a vehicle and provides a service such as cleaning, landscaping, pet grooming, or tutoring.

The franchisor provides training, equipment, marketing, and support. The franchisee has a high degree of flexibility and autonomy in running their business.

Business-format franchise

A business-format franchise involves a higher initial investment and ongoing fees. The franchisee operates a physical location such as a restaurant, hotel, gym, or retail store.

The franchisor provides a comprehensive package of training, systems, products, marketing, and support. The franchisee must follow the franchisor's standards and procedures in running their business.

Investment franchise

An investment franchise involves a high initial investment and requires the franchisee to manage multiple locations or units. The franchisee acts as an investor or a manager rather than an operator.

The franchisor provides strategic guidance, support, and quality control. The franchisee has to hire and train staff to run their locations.

Distribution franchise

A distribution franchise involves the distribution of products manufactured by the franchisor. The franchisee acts as a wholesaler or retailer of products to individuals or businesses.

The franchisor provides product development, marketing, and support. The franchisee must comply with the franchisor's pricing and quality policies.

Conversion franchise

A conversion franchise involves converting an existing independent business into a part of a larger franchise network. The franchisee retains some aspects of their original business such as their name, location, or customer base.

The franchisor provides access to their brand recognition, systems, marketing, and support. The franchisee has to pay fees to the franchisor and adhere to their standards.

Benefits of franchise businesses

Franchise businesses offer many advantages over starting an independent business or working for someone else.

Established brand and reputation

You can leverage an established brand name and reputation that customers already know and trust. This can give you a competitive edge over other businesses in your market and help you attract more customers. A popular brand comes with a built-in customer base that you can serve without needing to do too much additional marketing to find them.

Proven business model

You can rely on a proven business model tested and refined by the franchisor over time. Franchisors provide operational procedures, training programs, marketing strategies, and other tools that can help you run your business efficiently and effectively. You can reduce your risk of failure by following their best practices.

Support and training

Franchisees often receive extensive training and ongoing support from the franchisor, which can include help with site selection, startup assistance, operations management, marketing campaigns, quality control, and more. This can be especially helpful if you are new to the industry or to owning a business.

Collective purchasing power

Franchisees can also benefit from the collective purchasing power of the franchise network. By being part of a larger group, you can access lower costs for inventory, supplies, equipment, and other necessary items for your business. This can help you save money and increase your profit margin.

Lenders are more willing to finance franchises.

Franchises are also more likely to get financing from lenders than new, independent businesses. This is because lenders consider franchises to be less risky and more stable than other types of businesses. They also look favorably on the franchisor's track record, brand recognition, and support system.

How to start a franchise

Many franchise businesses will have documentation on how to start a franchise with their brand, but most franchises follow similar steps.

Identify your interests and goals

Identify your business interests, experience, and the lifestyle you envision. You need to consider what type of industry, product, or service you are passionate about and what skills and qualifications you have. You also need to think about your long-term goals and how much time, money, and effort you are willing to invest in your business.

Conduct thorough research

You can use various sources of information, such as online directories, trade shows, magazines, websites, and referrals. Compare different franchisors based on their reputation, performance, costs, support, and availability in your area. Don’t assume a popular brand will automatically work based on the brand name alone. Always do your research.

Perform detailed due diligence

Perform detailed due diligence on the franchisors you are interested in. This means investigating their history, profitability, legal issues, customer satisfaction, and franchisee relations. If possible, try to reach out to current and former franchisees to get their honest feedback and insights on their experience.

Examine the franchise disclosure document (FDD)

The FDD is a legal document that franchisors must provide to prospective franchisees before signing any franchise agreement. It details the franchise's legal, financial, and organizational history and structure. It also includes information on the franchisor's obligations, franchise fees, training, support, territorial rights, renewal, termination, and dispute resolution policies. Review the FDD carefully and consult with a lawyer or a franchise consultant if you have any questions or concerns.

Create a detailed business plan

A business plan outlines your goals, strategies, and projections for your franchise business. It helps you plan and anticipate any challenges or opportunities that may arise. It also helps you secure financing from lenders or investors who want to see how you intend to run your business and make it profitable. The more detailed your business plan, the better.

Assess your finances

Before you commit to any franchise opportunity, you need to assess your finances and make sure you have enough funds to cover all the costs involved:

• The initial franchise fee for the right to use the franchisor’s brand and system.
• The build-out costs for setting up your physical location according to the franchisor's specifications.
• The inventory and equipment costs for purchasing or leasing the necessary inventory and equipment for your business.
• The working capital needed to cover your operating expenses until your business becomes profitable.
• The ongoing fees you pay to the franchisor on a regular or periodic basis for their ongoing support and services.

Have a realistic estimate of how much money you need to start and run your franchise business, and how long it will take for you to break even and make a profit.

Choose a suitable location

Choosing a suitable franchise location for your franchise business is crucial for its success. You need to consider factors such as:

• Demographics
• Demand
• Competition
• Visibility
• Accessibility and convenience
• Zoning and legal regulations
• Costs and terms

Consult with your franchisor and follow their guidelines and recommendations for choosing a location.

Legal considerations and contracts

Before you sign any contract or franchise agreement with your franchisor, you need to understand the legal implications and obligations involved. Consult with a lawyer or a franchise consultant who can review the contract and explain the terms and conditions to you.

The most important contract you will sign is the franchise agreement, which outlines the terms of your franchise ownership. Those terms will include your rights and responsibilities, the terms of the agreement, the territorial rights, the fees and royalties, the training and support, the quality standards, the renewal and termination policies, and the dispute resolution procedures.

Take part in training

One of the benefits of owning a franchise is that you can take advantage of the training programs offered by your franchisor. Training will help you learn:

• The history and culture of the franchise brand
• The products or services offered by the franchise
• The operational procedures and systems of the franchise
• The managerial practices and skills of the franchise
• The marketing strategies and tools of the franchise
• The customer service standards and techniques of the franchise
• The legal and financial aspects of the franchise

Attend all the training sessions required by your franchisor and complete any assignments or tests that they give you. Additionally, you can and should keep up with your own business education and take advantage of opportunities to do so, such as making use of free online courses for small business owners.

Hire your staff

You may need to hire staff to help you run your business. Look for qualified, reliable, and motivated people who share your vision and values. Follow your franchisor's guidelines and policies for hiring, training, managing, and retaining your staff.

Launch your business

Once you're a franchise owner, plan a grand opening event to announce your presence in your market and attract customers. Implement a marketing plan to promote your business and generate awareness. Monitor your business performance closely and track your sales, expenses, profits, customer satisfaction, etc.

Make sure to ask your customers what they think. You can use marketing tools or something like custom signup forms to allow customers to engage with you.

Communicate regularly with your franchisor

Communicate regularly with your franchisor. Your franchisor is your partner in business and they want you to succeed as much as you do. They can provide you with valuable guidance, resources, feedback, and assistance throughout your franchise journey. Also, respect and follow their rules and standards and report any issues or concerns that you have.

Start your own business today

By choosing a franchise that suits your interests and goals, you can enjoy the benefits of an established brand, a proven business model, and a supportive franchisor. You can also avoid some of the pitfalls and challenges of starting an independent business, especially if you’re still trying to figure out how to start a business.

Do your research, plan your finances, follow the legal procedures, and work hard to run your business. Beyond these things, it helps to have a good set of marketing tools to start a franchise and maintain it, especially a customer relationship management software. Try Mailchimp's CRM today.