A lot of people are drawn to franchising. If it’s right for you, it can be a road map to profitable business ownership. You can get in on a great idea or successful business that has a track record of success and a strong brand, and still run the business yourself.Franchise expert Joel Libava defines a franchise as “a type of business that is owned and operated by individuals (franchisees) but that is branded and overseen by a much larger—usually national or multinational—company (the franchisor).”
Having a franchise means you’re getting on the bandwagon of an idea that’s already proven successful. Of course, as with any business, there are still challenges involved in starting a franchise and running one. As much thought will have to go into location, hiring, and management as any other type of business, even with the business model and brand laid out for you. And for some entrepreneurs, the loss of control (you are ultimately overseen by the franchisor) can be a challenge to the fiercely independent.
6 steps to franchise ownership:
1 Know your budget.
The first thing you should know is that there is always an upfront franchise fee, and franchisors often have financial requirements for whom they’ll allow to open one of their franchises. Go over your personal finances and assets so you can start looking for opportunities in line with your price range.
2 As with so many things, do your research.
For example, a Cafe Yumm franchisee must have a net worth of 500,000 dollars. If that isn’t where you’re at financially, look elsewhere. You don’t want to waste time dreaming up your plans to open a specific franchise, only to look at the fine print and realize it’s not a good fit.
3 Reach out to the franchisor and other franchisees.
You want as much detail and firsthand information as you can get about what it’s like to actually operate this franchise. There’s no substitute for face time with the people who’ve been there and done it before. One key question to ask franchisees, suggested by Joel Libava: Would you do it all over again?
4 Typically, both the franchisor and the franchisee will undergo an interview process.
This could take the form of conference calls, visits to their headquarters, and sit-down meetings. It will vary depending upon which franchisor you choose, but the goal will be for both you and the franchisor to go over the nitty gritty specifics and determine if the franchise is right for you. Take note of things like how much support the franchisors offer during setup, and if they provide ongoing training.
5 Sign the franchise agreement, and make your investment.
There is an upfront fee paid to the franchisor, and usually additional investment expenses such as kitchen or cleaning equipment. This is where it all begins.
6 If all is going well.
Renew your franchise agreement when it ends to continue your business ownership. Typically, these agreements are five to 10 years long.
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