Featured image by Shaafi Ali from Unsplash
If you look around you, you probably see a McDonald’s restaurant at your every turn. The same for KFC, Taco Bell, Domino’s, and many other foods serving lines. All these restaurants are examples of a franchise business.
Don’t get it twisted, though, food business isn’t the only field with franchising opportunities. Businesses dealing in auto parts, real estate, furniture, plastic, and so much more can also execute franchises.
In this post, we’re going to be talking about the steps you need to take to start a franchise. That means this post is created for anyone interested in becoming a franchisee.
What Is a Franchise Business?
A franchise is a business structure wherein a large corporation (franchisor) sells the right to open stores and sell products under its brand name to another smaller brand (franchisee).
For example, Toyota is one of the largest auto brands in the world. If someone wants to open a Toyota dealership franchise in their neighborhood, they would need to contact Toyota to strike a franchise agreement with them. If granted, the franchisee will open a dealership store under the name of Toyota, and Toyota (the company) will earn a return, depending on the nature of the agreement.
Who Is a Franchisor?
A franchisor is a company selling the right to its brand name and intellectual property.
Who Is a Franchisee?
A small business buying the right to open stores and sell products under the flagship name of a larger company.
How Much Does a Franchise Cost?
Franchise fees vary depending on the company concerned and the terms of the deal. However, in most cases, business owners can expect to pay between $20k and $50k, according to Small Business Administration.
What Are the Available Franchise Types?
Before starting a franchise business, you need to know the options available to you. Below are some of the popular areas people explore:
- Auto Parts
- Fitness Centers
- Real Estate
- Pet care
- Travel agencies
- Entertainment hubs
- Home and Commercial cleaning services
- Convenience stores
Importance of Visiting a Franchisor Before Starting a Franchise Business
Very soon, we’ll explain the steps to take to find a franchisor to partner with. However, before then, I’ll like to talk about the importance of choosing a franchisor in the United States.
As you know, the United States is one of the largest countries in the world from a business standpoint. There are many businesses in the US, and many more are getting opened every day. But, the real reason we think the US makes the best franchise source is because of the existence of the ESTA online visa.
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The ESTA USA is a unique type of visa that lets business owners come into the US anytime they like for a maximum of 90 days. Also, the ESTA takes just 72 hours to process. So, basically, it is easier to travel to a franchisor anytime you want.
As a franchisee, you know that you will need to visit your franchisor from time to time and to do that, you’ll need a free passage into their country. You don’t want to partner with a franchisor located in a country where the visa takes three weeks to arrive.
How to Start a Franchise Business
Step One: Pick A Franchise Niche That Aligns With Your Business Goals
As we’ve shown you above, there are numerous franchise niches you can explore. In fact, there are hundreds of them.
So, the first step of the process is identifying an area of best fit. Of course, this will depend on factors like:
- Where you want to situate the business
- Demand for the products in the niche
- Franchise fees
- Profit potential and margin, and many others.
It is up to you to sit down and make a decision on the important factors that matter to you.
Step Two: Research, Research, Research
Let’s say you’ve figured out pet care is the best franchise opportunity for your area. The next thing is to start researching potential pet-care franchisors.
As you can imagine, franchisors aren’t created equal. What a brand might lack, another might have. And what one brand might offer, another may not.
So, you have to consider many factors that you believe matter to you. For perspective, some factors to consider include:
- Proven sales record of a brand
- Nature of acceptance of a brand in a target area
- Potential for scale-up
- Up-sell opportunities
- Profitability margin
You can find information about potential franchisors on each brand’s website. Franchise owners usually publish information explaining their scope, requirements, and benefits on their sites.
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Step Three: Set Up Your Business as an LLC or a Corporation
Once you’ve identified the franchise area you’re going into, the next thing is to register a business in that line.
Many franchise owners won’t work with businesses that aren’t registered. In fact, some will state explicitly that they only deal with LLC companies and Corporations. So, to avoid getting rebuffed by a prospective franchisor, register your business first.
Also, registering your business helps ensure that your franchise business is getting set up as an entity on its own. From a legal standpoint, that’s crucial for all dealings and contracts.
Step Four: Gather Your Funds
If you’ve done your research well, you should have a clear idea of the amount you need to buy a franchise right from a franchisor. Besides the franchise fees, you’ll also need money for other aspects of the business, like setting up, staffing, resources, etc.
Some franchisors may demand that you have a certain amount in liquid assets. So, you have to know where that money is coming from. You need to have a clear idea of how to get this money.
If you’re leveraging loans, you must know that your credit score and personal reputation will have to be robust enough to carry the weight of a business loan.
If you don’t have sufficient funds and still aren’t qualified for loans, you may want to consider exploring franchises that deal with people who don’t have sufficient starting capital.
Step Five: Reach Out to the Franchisor
There are lots of ways to meet a franchisor. For example, you can contact them over the telephone, email them, send a message on their website or social media pages, or simply walk into their office.
Personally, I prefer the physical approach, as it gives you room to communicate and build a stronger relationship. We spoke about the importance of in-person visits earlier.
However, if a franchisor isn’t situated in the same state or country as you, you may have no choice but to contact them virtually. However, bear in mind that you’ll still need to visit your franchisor at some points.
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