1. Self-evaluation: what interests to you about opening a franchised business? Are you ready, willing and able to work long hours, including weekends and holidays (especially in the beginning)? Can you commit to following pre-determined business methods with very little variation, if any variation at all? Can you accept paying a portion of your profits to another entity (the franchisor)? Are you comfortable with the reputation of your business being largely reliant on the franchise’s network and not just your business unit?
Moreover, how much of your personal cash are you willing to part with to establish the business? Unless you’re fortunate enough to have enough money personally, do you have adequate assets (savings accounts, real estate, securities, etc.) to secure a loan?
2. Pick a franchise consultant to assist you (optional): despite all of the information available online, it’s still a good notion to enlist the help of a franchise consultant to help guide you through the process.
Much like a real estate agent is a good ally in the purchase of a home, a franchise consultant has industry-specific knowledge and can relate possibly complicated topics (including aspects of agreements and disclosure documents) to you in a more understandable way. A franchise consultant could also potentially keep you from experiencing pitfalls that may happen without their expertise.
3. Research: what kind of businesses can your area sustain—and are those the type of businesses you’re interested in opening? Federal and state governments provide free access to statistics and other data. Use the info gathered to match up your personal situation and the business environment of your area with a suitable franchise system. Plus, your common sense and gut feelings are good guides to figuring out what businesses are and could be sustainable in your locale.
Once you’ve narrowed your research down to a few strong contenders, request the franchise application from those companies. After the franchise decides that you could be a good match for their system, they will send you a copy of their franchise disclosure document (FDD). The FDD will give an even deeper look into their business system.
4. Visit a ‘discovery day’: a discovery day is an in-depth meeting between the franchisor and one or more potential franchisees. It can take place at a local outlet, but most likely will happen at the company’s corporate office.
Often, the franchisee or franchisees in attendance will see presentations about what the franchisor can offer in terms of support, and can ask questions. If done at the corporate office, a tour of the different departments and introductions to franchisee training and support personnel are common.
5. Speak to other franchisees: within the FDD provided by the franchisor is a listing of all current franchisees in their system. Find a few that are close to you and pay them a visit. Are they satisfied with the franchisor’s support? Is the reality of the business in line with prior expectations (financially and otherwise)?
6. Find a suitable location: if you’re located in a low traffic area or an area where there are no complementary businesses around, how are you going to get customers? The franchisor will delineate certain parameters for your territory in the FDD and franchise agreement. In addition, most franchisors assist with site selection. If you choose a suitable place for business on your own, the franchisor will have to approve your location before you can move forward.
7. Choose a franchise and secure funding: after you’ve completed your research, it’s time to make the big decision—which franchise system will you invest in?
Once you have decided, you’ll have all of the information necessary to complete a business plan and present it to potential lenders. There are numerous financing options out there for you to consider: bank loans, SBA (Small Business Administration) loans, HELOC (home equity line of credit), etc. Remember, you’ll need enough cash reserves to cover expenses until the business begins to turn a profit, which in some cases can be months after opening.
8. Sign the agreement: while many franchisors have rigid franchise agreements, some franchisors may be more flexible about negotiating terms in the agreement.
If the franchisor is willing to negotiate certain terms (like lease parameters), it’s a good idea to seek counsel from a lawyer with franchise-specific experience to find the best solutions for your particular situation. If the franchisor does have a rigid franchise agreement, that isn’t a cause for concern. Remember, franchises are based upon a proven system and consistency of the brand. If the franchise agreement for the brand you chose is overly negotiable, it could be cause for deeper investigation.
9. Obtain all necessary permits and insurance: each industry has its own requirements for permits and insurance. Regulations by state, city, county, etc. will vary as well. The franchisor will likely have background knowledge of the permits and insurance needed to operate their business system.
However, it’s a good idea to check with local authorities to ensure compliance. Two good websites to use as a reference to what permits and insurance might be necessary for U.S. businesses to obtain are the Small Business Administration and FindLaw.
10. Hire staff and attend the training: the number of staff members needed to run the operation will depend on the type of franchise chosen.
One of the most appealing aspects of franchising to those wanting to open a business is the training component. Franchisors usually provide training, in a combination of classroom and practical experiences, to at least the franchisee and another manager. A copy of the franchise operations manual is also typically presented at this time.
11. Open your franchise business: before opening, you will need to alert potential customers to their new marketplace option. Franchisors will often have defined processes for signage, ads, and other initiatives to be performed. Estimates for these initiatives will usually be a part of the start-up costs quoted in the FDD.
Some franchisors will do a ‘soft opening’ before the ‘grand opening’. A soft opening is designed to smooth out problems with the operation of the business before the big marketing blitz and hopefully larger crowds that will come with the grand opening. Some franchisors also arrange for a corporate trainer to be on hand at the franchise location during the opening days.