Because it is easier, some entrepreneurs prefer to open a franchise over their own business. The benefits of a franchise include operational/marketing support, brand equity, and a proven track record. Franchisees, however, need to do their research and do their due diligence. We’ll help you navigate the process of opening your franchise.
These are the steps you need to follow when opening a franchise.
1. 1.Do your initial research
If you are interested in opening a franchise, the first thing you should do is learn about franchising. This includes how it works and what you can expect. Websites such as FranchiseGator will help you locate franchise opportunities that meet your needs. You can also find more information on our ultimate guide to finding franchises for sale.
After you have identified the franchises that interest you, do your research to find the right franchise for your needs. These are some important things to keep in mind when selecting a franchise.
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- Personal preference What type of franchise would you like to own (e.g. Are you interested in a food business, technology-related products, or other types of services?
- Cost of the Franchise What is the total franchise cost (includes the franchise fee, property leasing, training expenses, insurance, and other costs)?
- What are the internal policies and guidelines of the franchise? Are they compatible with your management style?
Online Research
After you have made your decision on the franchise that you wish to open, it is important to fully understand their franchising terms. You can start your research online by visiting the franchise website to find out more about them. Other than their website, you might also be interested in testimonials and reviews from existing and former franchisees.
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Franchise Disclosure Statement
Once you have let the franchisors that you are interested in their franchise, they will send you a Franchise Disclosure document, also known by the Uniform Franchise Offering Circular ( UFO). This document outlines the franchising rules and fees as well as your responsibilities. It also includes important information such their legal and financial history. These rules and regulations are important and you must read them to ensure you fulfill all your obligations to the franchise.
2. 2. Attend Discovery Day
After you have chosen a franchise, the franchisor invites you to Discovery Day. This is a day-long event in which you can meet with other franchisees. This is your opportunity to learn more about the franchisor’s corporate culture, values and policies as well as the people you will be working with. The franchisor will have the chance to get to know you and assess you as a potential partner in business.
This is often the day that the franchisor decides if they want to work together with you. The exact requirements of a franchisor vary from one business to the next. A franchisor will not only look for specific qualifications, such as a college degree, experience in business, trade certifications and sufficient capital to invest, but they also want to see that you are committed and enthusiastic about their products or services and willing to follow their policies.
An average agenda for a discovery event includes group presentations, one-on-1 meetings and visits to existing franchises. Make the most of your discovery day to answer any remaining questions. Most franchisors expect you to make a decision quickly after discovery day.
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3. Review Your Franchise Agreement
If everything goes according to plan, the franchisor will present the franchise agreement. This agreement is the formal document that grants you legal rights to open a franchise. It is subject to a number of rules and regulations. A lawyer who has experience in franchise law is a good choice to assist you with your franchise agreement.
Take note of the promises made during meetings by the franchisor and check if these are included in the contract. If the franchisor promises legal support in the case of a lawsuit then make sure that it is clearly stated in the contract. This applies to pricing, transfer of ownership and protection of territory as well as rules regarding suppliers, pricing, royalties, staff hiring, training, and other matters.
Talk to the franchisor about the contract and what you expect. The franchisor should be notified if there are discrepancies in the written and verbal promises. Most likely, they will tell you that the verbal promises were made in error and that the terms in the contract are the real terms. If necessary, negotiate the terms.
4. Find the right franchise funding
Before signing the contract, ensure that you have sufficient funds to cover the franchise fee and any other expenses. Franchisors expect that your payment for the franchise fee will be included in the signed contract. To finance your startup franchise, you might want to apply for startup loans.
These are some of the financing options available to you in order to start your franchise
ROBS (Rollover for Startups in Business)
You can use funds from your retirement account for Rollovers for Business Startups (ROBS), which allows you to invest in your franchise without having to pay early withdrawal penalties and taxes. ROBS loans are generally easier to get than any other startup loan. It is easy to set up ROBS. You don’t need to repay interest or debt because it’s not a loan. You can find more information in our ROBS ultimate guide .
You can rollover your retirement funds to purchase a franchise business by using a Rollover for Business Startups (ROBS). Register for the ROBS information webinar to receive a free 30-minute consultation on franchise financing.
SBA Loan
A SBA loan can be a great way to finance your startup franchise costs. These loans have low interest rates because they are guaranteed by government. They typically range from 5% to 9 percent. New businesses might have a difficult time getting funding approval. The review process might be simplified if the SBA has approved loans for the franchise that you are opening.
Traditional Bank Loan
Another option is to apply for a traditional bank loan . It may not be the best option as many banks refuse startups. A strong business plan focusing on franchising will increase your chances of success. Be prepared to clearly present your business plan.
Franchisor Financing
Some franchisors will lend you money directly to help you open a franchise. Sometimes they work with financial institutions or lenders to offer loans. A partner lender can provide loans. They are familiar with the brand’s business model and may be able to help you fill out the application.
Other funding options
A minimum credit score of 680 is required to obtain financing to purchase or open a franchise. There are many financing options available for franchises if you are unable to obtain funding from the above sources. These options include crowdfunding, microloans and angel investors, to name just a few. Small business credit cards are another option for funding amounts below $20K. Our ultimate guide is available.
To keep your business and personal assets separate, once you have obtained financing for your franchise, you will need a business checking bank. Chase. This is a great option for your banking needs. There are more than 4,700 branches and 16,000 ATMs. They also have a mobile app and a simple-to-use website. Open an account now to receive a $300 bonus.
5. Select a Franchise Location
Once you have your funding, you can sign your franchise agreement to begin planning for your franchise business. Next, you will need to select a location. Based on their business analysis, the franchisor will often offer some recommendations and guidelines to help you choose the right location.
A commercial real property site may require franchisors to meet certain requirements. These include a minimum square footage requirement and a number of parking spaces. Most franchisors also have certain territory requirements.
A restaurant’s or storefront location may need to be within a certain radius of other franchises. The protected territory is usually smaller for larger franchises. A location chosen based on traffic can also be a good choice. This will increase your sales. Learn how to determine foot traffic to help you choose the best franchise location.
Leasing vs. Buying Your Location
Many franchise owners struggle to decide whether they should buy or lease a property. Franchise owners prefer to lease property as it has lower risk and costs upfront. If you plan to remain in the same place for seven years or more, it might be worth looking into commercial real estate. Our article on buying or leasing commercial real property provides more information and real-life examples.
Commercial real estate loans can be used to help fund the purchase of your property. There are many options available, including SBA 7(a), SBA 504. Conventional Bank Loans and Online Marketplace Loans. Hard Money Loans can also be used. The average rate will vary depending on which type of loan you choose and what your qualifications are as a borrower. You can find out more about commercial realty loan rates to better understand these rates.
It is important that you do the following for those who are looking to lease property:
Retail Spaces
- Pay attention to the five location criteria. Is the area safe, accessible and close to your target customers?
- As accurately as you can, estimate how much square footage you will need
- You can negotiate your rent and not extend the lease for more than you are comfortable with.
For Office Spaces
- Pay only for the quality that you require. Although less glamorous, C-class buildings can still function.
- Be aware of the exact location of clients and employees.
- You can negotiate your rent and not extend the lease on your office space for longer than you are comfortable with.
Learn more about leasing by reading our guides on how to lease retail space and how to rent an office space. To search for office and retail spaces, you can also use a property platform such as LoopNet.com. You can filter your search by many different criteria and property types using the advanced search menu.
6. Learn how to become a franchisee with the provided training
Next, you need to complete the required franchise training programs offered by the franchisor. This may happen before or after you sign a lease depending on which franchisor you choose.
Good training programs will teach you more than just what you need to know about products and services. They should also help you with marketing, managing employees, negotiating with suppliers and hiring. The training program usually lasts between one and two weeks. It includes both classroom and equipment training.
7. Get ready for Opening Day
Once everything is in order, you can open a franchise. The remaining tasks include interior remodeling, purchasing or leasing equipment, filling inventory and advertising open jobs. You may also need to hire staff. For more information about how to hire the right employees, please refer to our How to Find Employees Online guide.
Finding good employees can be one of the most difficult parts of starting a company. There are many ways to find qualified employees online and offline. Online hiring platforms are available to both professional and low-skilled workers.
How to plan a grand opening
You should aim to spend 20% of your first-year marketing budget on the opening ceremony. Because of the novelty of grand openings, this advertising budget will go further than later in the year. Ask your franchisor about the opening ceremonies of other franchisees that have been successful. You can also find out more about planning your grand opening by consulting our ultimate guide to grand opening ideas.
Bottom Line – How to Open a Franchise
Franchises don’t completely remove the risk of starting a business. It can be limiting, as it does not provide a clear path to follow, such as branding, products or daily operations, but it can give you a solid foundation. It is important that you read the disclosure document and the franchise agreement before opening a franchise. You should also seek legal advice from a lawyer.