How to Open a Franchise

It's easy to see why thousands of new franchises open across the globe every year. Franchise businesses have the advantage of an established, well-known brand and the support of a successful parent company. However, despite these advantages and the popular conception that franchises are a "safer" investment than traditional small businesses, the success rate of the two remains about the same.^[1] Even with the support of an experienced company behind you, you'll need significant investment capital, lots of hard work, and a shrewd business sense to turn a profit as a franchisee.

Steps

Becoming a Franchise Owner

Contact your desired franchise business(es). Start your journey to franchise ownership by meeting with franchise businesses that interest you. Schedule appointments with representatives from your chosen franchises to learn the requirements to open your own franchise. Ask for statistical data about the franchise's operations and find out the kinds of training, marketing and operational support the franchise representative can offer you.
- Responsible, legitimate franchises will be happy to share information with you. Be wary of businesses that seem reluctant to disclose specifics about their franchises (especially success/failure rates) or overly eager to "sell" you on hot, too-good-to-be-true deals.
Make a business plan. Review all of the information that you've been offered by your prospective franchisors as well as your own research into market conditions. Incorporate this information into a thorough, well-written business plan. Make sure your business plan includes estimated investment costs and projected returns. The quality and legitimacy of your business plan can dictate not only whether you are allowed to open your own franchise, but also whether you're approved for any loans you may need.
Enlist professional financial help. The myriad laws surrounding the opening of a new business can be tremendously complex - for first-time owners, even prohibitively so. Unless you have seasoned legal or accounting knowledge, seriously consider getting a lawyer and/or accountant to help you review the specifics of your new business. The fee associated with obtaining this type of help is well worth it in the long run, especially if it prevents you from entering into an exploitative contract or making unwise investments.
Raise investment capital. If you're independently wealthy enough to pay for the opening of your own franchise entirely out-of-pocket, you're one of a lucky few. Most people need some form of financial assistance to cover some of their franchise's initial investment. Present your business plan and any relevant information from franchise representatives to banks or private investors to show them that your business opportunity is a viable one.
- If you're unable to obtain a loan from a bank or commercial lender, you may find success with a government loan from the government's Small Business Association (SBA). These loans are partially guaranteed by the government and are generally seen as lower-risk than traditional loans.^[2]
Sign your contract with the franchise owner. When you're confident you meet all requirements for franchise ownership and that your business plan is a recipe for success, you may proceed to signing a binding agreement with your franchisor. Make sure to have your attorney review the contract before you sign it. If you have any questions or need more information, be sure to get satisfactory answers from franchise representatives before agreeing to anything.
- This is another part of the process during which you'll want to have access to the expertise of a financial professional. Make sure to have your attorney review the main contract and any other binding documents before you sign them.
Enroll in your franchisor's internal training/orientation program. Most franchise businesses require new owners to receive training to prepare them to run their new business according to the policies of the parent company. Follow all training procedures offered by the franchise owner to make sure you fully understand the business strategy of your new franchisor.
- Note that, unfortunately, some of these training programs may require travel, lodging, materials, and the like paid at your expense. Try to get an estimate of these costs before embarking on your new training regimen.

Preparing to Open Your Franchise

Rent or buy a location for your franchise. When it comes to franchises, location is everything - you'll want a spot for your franchise that is visible, accessible, and centrally-located in an area with a market for your new business. You'll also want to carefully consider the franchise's location relative to competing businesses. You typically do not want to set up too close to a competitor, especially if this competitor is the same franchise as yours!
- To this end, many franchise owners have specific requirements for franchise locations that take the location of competing businesses into account, so make sure to follow any and all of these guidelines.
Interview, hire and train employees. A small business lives and dies by the efforts of its staff. Some (relatively uncommon) professional franchises may look to recruit highly qualified applicants for long term work, but average blue-collar franchise businesses typically deal with unskilled, relatively low-paid labor sources. As such, your turnover rate is likely to be high. Thus, it's especially important to streamline your application and hiring process to reach a large pool of unskilled applicants.
- Consider using the internet to reach as many applicants as possible. Job posting websites like Craigslist are great places to reach out to locals in search of work.
Order equipment and inventory. Many franchise businesses, especially restaurants, require a substantial initial investment in terms of equipment (for example, ovens, large-scale freezers, etc.) Most franchises will require you to buy directly from the parent company or from an approved vendor - this is in an effort to keep all franchise locations as uniform as possible and also, obviously, to make money for the parent company.
- In addition to the initial investment, you'll need to arrange to receive regular shipments of inventory (in the case of restaurants, for instance, food). Again, this is usually purchased from the parent company.
Advertise the opening of your franchise. Usually, because they want to make money, franchisors will assist with the marketing and add your franchise to their main website. However, you will probably also want to make any additional efforts that you can to promote your franchise. Try to reach as large of a customer base as possible. For instance, you may want to pass out flyers in the local area, take out an add in the newspaper, offer an opening-day discount, and/or coordinate an online marketing push.
- Be sure to advertise your new business with any standardized promotional materials you've received from the parent company. Usually, you'll be required to display these materials in the front window, parking lot, etc.
Open your franchise. Be well-prepared for opening day - have everything you need (and more) in terms of equipment and inventory for opening day. You'll also want to make sure that that you've scheduled enough staff to cover your initial demand. Most importantly, you'll want to make sure that you are focused, present, and ready to work on opening day. In general, it's far better to be over-prepared for your business's opening than to be under-prepared.
- Try to make as big of splash as possible! Make sure to invite the press and to get good write-ups in local papers and online.

Deciding Whether a Franchise is Right for You

Research, research, research. A franchise agreement is not something to enter into lightly. Franchise businesses are serious investments for their owners - they represent a very real risk/reward scenario for the franchisee. Intelligently run, they can provide income and security for years. However, they can also lose the owner lots of money. Before taking any serious steps toward opening a franchise, research the process extensively. Below are some of the questions you'll want to be able to answer definitively:
- How big of investment will I be able to safely make?
- Does my chosen franchisor have a history of good business relationships with its franchisees?
- Do I have a business plan that takes my location, resources, and abilities into account?
- Am I truly passionate about the sort of responsibilities I'll have?
Investigate your franchisor. Today, because of the sheer scale of many international businesses, prospective franchisees have a variety of options when it comes to picking a franchisor. For example, if you want to open a fast food franchise, you'll find that a number of franchises (such as Burger King, McDonald's, etc.) that may be willing to work with you. Regardless of the franchisor you eventually choose, you will want to find out more about the business strategies, yearly returns, and philosophies of each company you're considering working for.
- Make sure you know exactly how much support you'll receive from your parent company as a franchise owner. Generally, you'll want as much help as you can get in terms of training, setup, marketing, and initial operations so that you can minimize your investment in terms of time and money, and, thus, your risk.
- Franchise businesses are required by law to provide you with important business information before you become an owner. This includes the Uniform Franchise Offering Circular (UFOC), which contains information about the franchise's legal, financial, and personnel history that may influence your decision.^[3]
Analyze the business capacity of your location. Just because a franchise business has a history of success elsewhere doesn't mean it will necessarily be a success in your area. Scrutinize the business features of your intended area of operations - how large of market is there for your business and what kind of market is it? Is there lots of walking traffic in your area? Is the area frequented by rich "yuppies" or working stiffs? Are certain cultural groups more prevalent than others? The answers to these questions (and many others) are key to determining whether your franchise has the potential to your success.
- Many franchises confine their owners' operations to certain "territories" - owners may not even be allowed to advertise outside of their territory. Because of this, it's extra-important to be sure that your territory is well-suited to your franchise's business.
Consider your career priorities. Owning a franchise can be immensely satisfying for some entrepreneurs and immensely draining for others based on the priorities of the individual manager. People who like hard, hands-on work that doesn't vary greatly over time may love being a franchisee, while people who prefer intellectually stimulating, varied, creative work may be bored to tears.
- Though all franchises differ, most won't require the types of high-level intellectual and analytical abilities offered by postgraduate degrees. In terms of education level, it's perfectly possible to be over-qualified for franchise ownership. People with law degrees, doctorates, etc., may find that their skills are more suited for a role at a professional-level franchise (for instance, in the area of consulting) than at a service industry franchise.
Consider your strengths and weaknesses as a manager. Franchise owners almost always need to take a personal, active role in the day-to-day operations of their business. Franchisees should be comfortable interacting with both their customers and employees in casual situations as well as intense, stressful ones. They should be energetic, disciplined, and detail oriented. They should take pride in their work. They shouldn't shrink from getting their hands dirty. Essentially, they should be comfortable with a hands-on, self-motivated management style.
Take your future career plans into account. Franchises (even successful ones) can limit the owner's career opportunities, so it's important to be sure that you can achieve your intended career goals in the near-to-medium term within the franchise system before entering it. This is especially crucial because many franchise agreements are binding for specified lengths of time - five years, ten years, etc. Once you begin one, usually, the only way out is to sell your franchise to a willing replacement. Consider the following:
- Do I have plans to pursue a degree in the future?
- Am I interested in pursuing a corporate job in the future?
- Do I have hobbies or side-businesses that I want to devote time to?
Get an accurate total for the costs of running your franchise. The best franchises will give you accurate estimates of the expenses that you'll incur when opening your franchise. Unfortunately, less-trustworthy franchises may try to hide some of these costs from you to entice you into ownership. Make sure your financial plan for the first year or so of operation takes all probable expenses into account, including (but not limited to) the following:^[4]
- Inventory and equipment (note that many franchises will require you to buy exclusively from the parent company)
- Payroll
- Rent, mortgage, etc.
- Legal (and related) fees.
- Interest payments on any loans.
- Business insurance
- Employee benefits