How to Start a Franchise in 8 Steps

How to Start a Franchise

Franchising offers business ownership opportunities by leveraging a proven idea and strong brand. While there is some loss of autonomy and control, you benefit from an established playbook, guidance from the franchisor, and most importantly, the ability to avoid starting a business from scratch.

Is becoming a franchisee the best way to start a business?

Learn how to choose and start a franchise that aligns with your interests.

What is a franchise?

A franchise is a business owned by an individual (franchisee) but branded and supervised by a larger company (franchisor). Common examples include Subway, 7-11, and Hilton Hotels.

Purchasing a franchise grants you the right to use a tested business model, pricing, products, and marketing strategies.

Additionally, franchisees gain access to the company’s trademarked materials such as logos and slogans, which are essential for establishing a brand identity.

How to start a franchise

While franchisees bypass idea creation, customer validation, and brand development, there are still critical steps involved, similar to starting any other business.

1. Know your budget

An upfront franchise fee is always required, and franchisors often have financial requirements. For example, some franchisors mandate a specific net worth for franchisees.

Review your finances and assets to identify opportunities within your price range, and determine how you’ll finance the franchise, whether through personal savings, bank loans, or franchisor financing options.

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2. Do your research:

Avoid wasting time by exploring franchise opportunities that are not a good fit for you. For instance, if a Cafe Yumm franchise requires a net worth of $500,000, and you’re not at that financial level, consider other options.

Connect with current franchisees to gather information about the business, including pros and cons, working dynamics, and potential costs.

Additionally, check if a franchise is already operating in your area as the franchiser may be hesitant to approve another location nearby.

3. Participate in an interview

Starting a franchise involves an interview process where you and the franchisor review specifics to determine suitability.

Take note of the level of support offered by the franchisors during setup and ongoing training.

4. Write a business plan

Although many important aspects are well-established when starting a franchise, a business plan is still necessary to cover operations, sales projections, expenses, and employee requirements.

A thorough market analysis is essential to understand the local market and your target customers. Most franchises offer assistance with this aspect.

Refer to our business planning hub for guidance on writing a franchise business plan.

5. Choose a suitable franchise location

Franchise location selection can be influenced by specific requirements. Consider factors such as size, setup, and the surrounding business environment.

Additionally, evaluate if the location appeals to your target customer base, has sufficient foot traffic, and is easily accessible.

If the franchisor doesn’t provide assistance, consult our complete guide on selecting a business location for specific steps.

6. Sign the franchise agreement and review the FDD

Before signing a binding contract that outlines mutual obligations, review the Franchise Disclosure Document (FDD).

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The FDD contains relevant information such as the franchisor’s background, financial statements, initial and ongoing costs, training and assistance details, franchisee obligations, territory specifics, trademarks, renewal and termination terms, a list of current and former franchisees, potential earnings, and restrictions.

It’s advisable to review the FDD carefully, preferably with the assistance of a lawyer, before signing.

7. Make your business legal

In addition to the franchise agreement and the FDD, starting a franchise requires compliance with additional legal requirements.

Set up a business structure as specified by the franchisor. Apply for federal and state tax IDs and obtain relevant licenses and permits based on local, state, or federal requirements. Register for necessary tax identification numbers and fulfill insurance obligations.

8. Stay updated on franchisor policies

Most franchisors provide training programs covering various aspects of business operations and customer service. However, it’s important to stay informed about policy changes, marketing strategies, and product offerings to ensure brand consistency and franchise success.

For more in-depth information, refer to our resources on starting a franchise or a new business.

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