Starting a franchise business mirrors the experience of launching your own venture from scratch. As a franchisee, you benefit from established brand recognition and standardized operational procedures. Being part of a larger entity also means accessing a pre-existing customer base. However, there are hidden costs and prerequisites to consider before diving in. This article will guide you through the essentials, showing you how to launch a franchise in eight straightforward steps.
What is a franchise business?
A franchise business involves an owner who licenses others to operate under the business name, selling products or providing services at specific locations. Consider well-known names like Baskin-Robbins or CrossFit, which operate in various cities. Each outlet is a franchisee, independently managed, yet paying a fee to the franchisor for the right to use the brand name.
Key financial aspects of starting a franchise include:
- Franchise purchase fee: Ranging from $20,000 to $50,000, depending on the brand.
- Minimum liquid capital: For a service-based business, it’s wise to have $50,000 to $60,000 available, while a facilities-based business may require $75,000 to $100,000.
- Franchise royalties: An ongoing fee, usually 4% to 12% of your location’s profits, paid for the privilege of operating under the franchise name.
- Additional expenses: Consider costs for commercial space, staffing, and more.
Why start a franchise?
The appeal of starting a franchise lies in the inherent advantages of brand recognition and established business procedures. Many foundational elements are already in place, easing the initial setup process. However, this doesn’t equate to an effortless journey.
Franchisees must allocate a portion of their earnings to the franchisor, adding extra costs to any budget plans. Additionally, franchises require adherence to set brand standards, limiting the degree of personal control and innovation—an aspect that might challenge entrepreneurial spirits.
Common types of franchises – Food and drink
Restaurants and food outlets are perhaps the most familiar franchises to consumers. If you have a favorite fast-food restaurant or convenience store, you might be inspired to explore similar franchise opportunities:
- McDonald’s.
- KFC.
- Jersey Mike’s.
Business services
If you’ve visited UPS or similar businesses, you’re acquainted with this franchise category:
- Express Employment Professionals
- Real Property Management
- FastSigns
Health and fitness
Franchising is a popular model for many successful gyms. They offer essential services while fostering a sense of community and consistency, especially for newcomers in a city, through group fitness classes. Healthcare can also leverage franchising. If you’re passionate about healthcare services, consider franchises that offer home nursing or professional consultations:
- Planet Fitness.
- The Vitamin Shoppe.
- Home Helpers Home Care.
Retail
Many renowned retail stores nationwide operate as franchises:
- Edible Arrangements.
- Pet Supplies Plus.
- Apricot Lane Boutique.
Expanding opportunities
Franchises are ubiquitous across the country. No matter your business interest, you’re likely to find a franchise that has carved out a successful market niche:
- Lapels Dry Cleaning.
- SuperCuts.
- L.A. Bikini.
Franchise pros and cons
One of the biggest advantages of a franchise is the head start it offers by eliminating the need to build from scratch. With established branding and design concepts in place, you can concentrate on vital business operations. Franchisors also have established vendor relationships, sparing you from researching providers and negotiating contracts. However, this can also mean you may not have the option to select your own vendors.
On the downside, franchises typically offer limited creative control. If designing your own brand identity and managing product design are priorities for you, franchising might not be the best fit.
Advantages:
- Established brand recognition and customer base.
- Access to existing vendor networks.
- Predefined logos, branding, and style.
Disadvantages:
- Higher initial investment.
- Restricted innovation freedom.
- Requirement to adhere to corporate standards.
How to launch a franchise in 8 steps
Embarking on a franchise journey requires careful planning to align with the franchisor’s standards. From selecting the right opportunity to securing a location, here’s a step-by-step guide to help you get started:
1. Research franchise opportunities
Begin by exploring franchise opportunities on platforms like Franchise Direct, which categorize options by industry, remote work potential, and cost-effectiveness. Key considerations when selecting a franchise include:
- Industry fees.
- Required liquid capital.
- Average monthly/yearly revenue.
- Royalty fees.
- Marketing fees.
- Additional fees.
2. Assess the market
Before setting up your franchise, ensure no other location is saturating the area. While some franchises like Dunkin’ Donuts can thrive citywide, avoid launching in a location that might underperform due to competition.
3. Analyze costs
Starting a franchise involves several financial commitments. Beyond typical expenses like rent and maintenance, you must pay an annual royalty to the franchisor. Other costs include travel, training, and local taxes necessary for business initiation.
4. Develop a business plan
Although many business elements are predetermined, your stewardship is crucial. Craft a business plan that showcases your ability to manage the franchise effectively. Demonstrate a deep understanding of the local community you intend to serve, positioning yourself as an expert beneficial to the overall franchise.
5. Acquire the franchise license agreement
The franchisor provides a contract outlining the operational standards for your location. Thoroughly review this agreement to ensure you are comfortable with and understand all expectations.
6. Establish a business entity
Following your business plan, establish an LLC or corporation. Different franchisors require specific business structures, but regardless, this step helps categorize your business expenses effectively.
7. Select your business location
With your operations defined, search for a suitable business location. The franchisor likely has guidelines regarding necessary space size and setup. If it’s a restaurant, expect specifications for appliances and amenities that align with the brand’s standards.
8. Recruit employees
With agreements signed and a location secured, begin hiring employees. The franchisor often provides job descriptions and titles, simplifying the recruitment process. Some franchises may even offer an internal job posting system for relocating employees from other locations.