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The Complete Beginner’s Guide to Owning a Franchise

If you want to own a business, but don’t want to take on the risk that comes with building a new brand, franchise ownership may be the best path for you. 

Franchise owners benefit from having the reputation and resources of a larger corporation, while still being able to run an individual store as their own business. This isn’t to say that franchise owners will not have their own set of issues; there will still be problems to work through as a franchisee. 

If you’re new to the world of franchise ownership and want to learn how to get started,  this step-by-step guide is for you! 

Step 1: Conduct preliminary research.

One of the most important steps to becoming a successful franchise owner is selecting the right franchise. Before just jumping into the first franchise that you qualify for, you should do some preliminary research to truly understand everything about the franchise. 

Identify your interests

Before conducting any deep company research, take a step back and think about yourself first. What industries interest you? Do you have any prior experience that would lead you to run a certain type of business over another? Make sure that the franchise you pursue is in an industry that you feel passionate about – because that passion can be the fuel that keeps you going when times get tough

The most common industry for franchise ownership is the hospitality sector, but there are franchises available in almost every industry today. Some of the other popular industries to own a franchise are service-related fields (HVAC, Mechanics), retail stores, and wellness-related services. 

Conduct franchise-specific research

Once you’ve narrowed down your franchise industry, you’ll need to look through the specifics of each franchisor. Just like any other business, not every franchise is built the same, and one may be more aligned with your skillset and strengths than another.

As you get started, check out franchise research tools to get a quick snapshot of the most important information about each franchise. We recommend using the IFA’s Franchise Database tool, where you can easily see important information about each franchise. As you research prospective franchises, consider:

  • Location — Location is extremely important when selecting a franchise. Certain franchises only operate in specific geographical locations while others may have a limit of how many can operate in one area. 
  • Costs — One of the biggest drawbacks of owning a franchise is the high-startup costs. Each franchise will come with its own financial requirements that an applicant must meet to qualify for ownership. Check out this guide to get a breakdown of the cost of ownership for the most popular food franchises.
  • Reviews — Try to track down owner reviews about each franchise group. Certain franchises will have higher success rates than others due to better support from management.

After you have reviewed everything, you should have a shortlist of franchises to contact to discuss applying for ownership. 

Step 2: Determine franchise costs.

For this example, let’s say you want to become an Ace Hardware franchise owner. An applicant must have $250,000 in liquid capital, with a net worth of at least $400,000. On top of that, you must also be able to afford $5,000 in franchise fees and other smaller startup costs. 

Most people will not have over $500,000 laying around to become a franchisee. Luckily, there are a few financing options available. Some common ways to fund your franchise include:

Franchisor financing

If you need some financial assistance, certain franchises offer financing through their own lending services. These services are a great one-stop shop for prospective owners, but getting approved can be very difficult.

SBA loan options

The small business administration offers a range of options to help prospective franchise owners handle the upfront costs of becoming an owner. The SBA 504 loan offered by the U.S. Small Business Administration (SBA) can provide applicants with up to three million dollars and with long repayment options.

Alternative business loans

Online-based business loans have become an increasingly popular option within the business lending space. These small business loans can be a great option for applicants who do not qualify for funding through traditional lenders. 

Not every franchise is going to be as expensive as a national brand like Ace Hardware, but the fact is, investing in any franchise will require you to have a strong financial backing.

Step 3: Complete the application process.

After you’ve reviewed all the prospective franchises available to you, it’s time to pick one and apply to become a franchisee. The franchise application process is thorough,  and it should be approached with the utmost caution and care. 

A franchise application will usually ask you for very specific information about your financial situation, work history, and reasons for applying for a franchise. Applying for a franchise is like applying for any other job, except you are the boss – which is why franchise groups will be extremely thorough when vetting potential franchisees in the application process.

Pro tip: Many prospective franchise owners find it useful to consult a legal expert to help guide them through the application process. This ensures that you’re asking all the right questions and taking any legal repercussions into consideration before you commit to buying a franchise.

After you fill out the application, if the franchisor is interested, they will provide you with the Franchise Disclosure Document, or the FDD. An FDD features twenty-three sections that provide you with all the legal, financial, and business information that you will need to become an owner. Essentially, the FDD completely lays out the agreement between a franchisor and an individual owner. 

Again, it would be wise to bring in a franchise lawyer to help understand the more intricate legal details of the agreement. 

Step 4: Attend the franchise discovery day.

If you’re invited, it’s a good idea to attend the franchise discovery day for the franchise you want to purchase. A franchise discovery day can be thought of as an extended recruiting visit. The franchisor is attempting to further gauge a candidate, while the candidate should be feeling out what it would be like to work for the franchise.

Make sure to do your research before attending the discovery day. You will want to treat this as an extension of the application process. Sometimes, franchisors will be choosing between a few candidates and the discovery day could influence the decision.

Some questions to ask during the discovery day are:

  • Do you support multi-location ownership?
  • Have there been any franchise terminations as of late?
  • What are your three-year and five-year growth plans?

Bringing questions will show the franchisor that you are serious about becoming an owner.

Step 5: Close the deal and open up shop!

If you have made it to this point, congratulations! Becoming a franchise owner is no small feat, but just know, the work has just begun.

Just like with any other business, starting a franchise from scratch can come with some early challenges. You’ll have to build out each department yourself, and it can be intimidating when just starting out.

Make the right hires

Hiring will be a crucial component determining your early success. Having the right people in the right roles is fundamental to any business, but especially in the early days of a new business. Your first employees will create your business’ early reputation in your community and can set the tone for your workplace culture going forward. 

Pro tip: Make sure you’ve established your core values early and use them as a guidepost when hiring.

Without having a dedicated HR team, it can be difficult for a small business owner to manage their own hiring efforts because they’re so focused on a million other things when launching and running a business. 

Using franchise hiring software can save you time and money while equipping you with all the tools you need to attract and hire the right people for your roles – not just “warm bodies in seats.” As you start to hire, your new business will begin to feel like it’s coming together. 

Start marketing

One of the biggest benefits of owning a franchise is that you’ll already have an established customer base. Not having to build up a brand from scratch will help you save time and money when it comes to marketing. 

While you won’t need to spend money on logo creation or web design (the franchise group will do all that for you), you should still make sure local marketing efforts are driving local engagement. 

As a new business in town, it will be important to get listed on any local business directories and on Google.

Before opening, consider getting out in the community and having some sort of grand opening event. Local communities usually support a new venture and will be curious to check out the new business in town. 

Step 6: Set your business up for future success.

The first year of your business will be the most important in determining your success. Every few months, take a step back and look at the current state of the franchise. How does your performance compare with other franchises in the area?

To ensure continued success, always try to solicit local feedback about your business. Your customers will often be able to identify areas of improvement before you can.

It’s also a good idea to meet with other members of your franchise group quarterly to make sure that you are aligned in business practices and keep your finger on the pulse of current market trends.

Owning a franchise can seem intimidating at first, and we won’t lie: it’s hard work. But it can also be a rewarding career path for independent entrepreneurs who are up to the challenge. 

2021 Recruiting Metrics Report: Franchise Hiring by Industry

Learn what the current hiring and recruiting landscape looks like for franchise owners by downloading our free 2021 Recruiting Metrics Report.

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