Opening a franchise business is a great idea if you want to start something of your own but are not ready to do new business. Franchise or not, any new venture can seem intimidating in the beginning. A strong business plan, process steps knowledge, and persistence & determination – you need these three things to become a successful franchiser.
Career lancer will share with you the steps and guide you to start your own franchise business. However, you must know the details and basics before you dive deep. The article will help you take the decision of whether you want to start the franchise or not.
Franchising Stands a Better Chance at Success
According to studies of US retail sales and economic impact of franchises, the success rate of franchise business is considerably better than start-ups and non-franchise SMEs. Franchising makes a significant part of the national economy and stands a better chance for success than business start-ups today.
A franchise business comes with a launch structure, a ready-made market to cater, operational techniques and growth. All you need is experience and business management capabilities to take the business forward.
What is a Franchising Business?
There are two parties involved in the business – a franchise and a franchisor. A franchisor is the brand, owns the business model and the trademarks. The franchisee pays the franchisor to start a business and use the franchisor’s expertise, business model, products, and market. The franchisor provides assistance to the franchise to start the business, including training, product knowledge, marketing, and advertising tactics, and other support services.
Although the franchise will be the boss of that particular franchise, the franchisor is the ultimate seed for the entire thing.
The most common and popular franchises that we could think of instantly are Subway, KFC, and Lakme, FabIndia. There are international franchises and there are national franchises. From wedding gowns to threads and needles, there are franchises for literally all type of industries.
Different franchises work on different frameworks, and that is how they vary from each other. Each has a unique process and system to establish, market, and make profits. Therefore, your options are limitless. All you have to do is sit for a while and think where your passion lies and what kind of products you can sell the best.
Franchising Comes with Host of Benefits
There are hundreds of benefits for owning a franchise. As an entrepreneur, you may think a franchise is an easy way out from running a business. But, that’s not it. Running a franchise and keeping up to the brand value is as important as running your own business. Here are four reasons why franchising is way better than starting your own business.
It has Lower Start-up Costs
If you are looking to establish a successful business quickly, but with limited fund, franchising should be your first option. A business start-up, depending upon the industry, could be extremely expensive. You may not have access to large funds. While, in a franchise business, you just have to make an initial payment for becoming a part of the brand. And, you can continue to pay a percentage of the revenue throughout the duration of your agreement.
Which means the start-up costs, such as the cost for setting up a business, hiring and training staff, and launching the business, everything will be borne by the franchisor or the parent company. Therefore, it is a very cost-effective route for business incorporation.
Easy Management and Faster Expansion
Your objectives to run a franchise will be very closely aligned. The management totally is determined by the key performance indicators and leadership abilities of the franchisor. Moreover, since this is going to be self-financing, and simplified management business, franchises’ networks can be easily expanded than company-run networks. By replicating clear and successful business formula of a successful franchisor, your brand can expand nationwide and boost sales volume quickly.
Instant Name Recognition and Brand Value
You don’t have to use strategies and tactics to develop a brand value. When you start a franchise, you will be delivering an established brand value to your customers, meaning an already recognized name. For instance, if you open a KFC brand, you need not have to promote how fiery their chicken wings are. You will receive customers regardless of your brand development plans.
Immediate brand recognition gives you an opportunity to build customer base quicker. You will also be able to build only a loyal customer base. You will, however, need help for your franchise to grow in the newer market.
Grow Your Business Internationally
You can quickly and simply grow your national franchise to another country through a system called Master Franchising. The system allows franchisees to adapt to the local market overseas, its languages, legal rules and regulations, and business culture.
Steps to Start Your Own Franchise Company
Franchise ownership brings immediate recognition, exciting opportunities, proven track record, and guaranteed profit. The brand you choose, your country, city, and market, however, plays a very important role in determining your business success. Let us walk you through the steps of incorporating a franchise company.
Step 1: Choose a Franchise in Which Your Passion Lies’
Your business goals should align with that of the chosen franchise. First, learn about franchising in general, how it works, and what you can expect out of it. Make a list of franchises that match your financial goals, your skills, and your personality. You have to determine your strengths and weaknesses as a business owner, the type of industry you would like to own (food, fashion, electronics etc.) and if there is a market for the franchise to grow.
You should also consider the cost of the franchise and the company policies or regulations.
Once you have decided the industry and a suitable brand, conduct your primary and secondary research about the company, and their terms and conditions. You can find information about the company on their website and other sources, such as reviews and testimonials.
The franchise company will provide you with a Financial Disclosure Document, once they come to know that you are interested. The document highlights the rules, responsibilities, fees, legal terms, and history.
Do not read the document on your own. Before you even begin walking on this path, hire an attorney or a legal advisor to gain knowledge and insights.
Step 2: Get Your Funds Ready
Before you sign a franchise agreement, you need to make sure that you have acquired the funds to cover the start-up costs and expenses. You have to determine how to finance your business. You could use your own funds for this, or choose one of the following options:
- SBA Loans: They are easiest to acquire and the best way to cover a new business. They have low-interest rates (below 9%) since guaranteed by the government. However, if you are a new business, getting hold of an SBA loan is difficult. On the other hand, your franchise, if it has a loan running previously approved by SBA, can streamline the application process.
- Rollover for Business Start-ups (ROBS): They are faster to obtain and usually let you use the funds from your retirement account. In here, you won’t have to pay any debt or interest as it is not a loan exactly. You can use up to $50k of your retirement amount.
- Bank Loan: You can apply for a business bank loan. Make sure you come up with an excellent business plan to reduce the chances of being turned down by the bank.
- Other funding options that you can consider are franchise funding, microloans, crowdfunding, and angel investors.
Step 3: Choose Your Business Location
You need to set up your franchise in a place where there is access to the target market. The franchisor usually has a set guideline on location, which you can follow to identify the right place to launch your business. For instance, the certain franchisor may have strict territory requirements about the site area and space, such as a number of parking slots, minimum sq. ft. area, the distance from other franchise, traffic, such as foot traffic vs general crowd, and competition.
Once you have found your site location, you have to decide whether you want to buy the property, lease it or rent it.
Leasing a property runs a lower risk when compared to buying or renting a franchise. Leasing also requires lesser upfront money. If your vision is long-term and you know there is a guaranteed a return, you could consider buying the site.
Pay close attention to the location criteria, including security, proximity to the target market, competitors nearby, accessibility, and compatibility with business.
Step 4: Review Your Franchise Agreement
The contract or agreement lists the roles and responsibilities of the franchisor and franchisee. The contract gives you the right to start and run a franchise legally by abiding by the rules and regulations set by the franchisor. Make sure you make your lawyer go through the franchise agreement before you sign the lease or contract.
Also, ensure that the promises made by the franchisor during the initial meetup are stated in the contract. Go through the payment terms, rules on suppliers, transfer of ownership, royalty fees, protection of territory, and pricing, again and again, to leave no stone unturned.
You have to see there are no discrepancies between what was said and what is mentioned. If you are not satisfied with any of the points, indulge in a good negotiation. Do not settle for anything less.
Step 5: Incorporate Your Business
You need to make your franchise legal on papers. You could form either an LLC or corporation. Establishing a legal business structure will give you tax advantages, legal benefits, and long-term business gains. Apart from the business advantages, incorporating a business helps you safeguard your personal assets against business liabilities.
For instance, in the worst case, if your business is legally sued, you will be able to protect your personal assets even if your business faces liabilities. Also, your business will enjoy several tax benefits.
Having a legal business structure will make you seem like a credible and professional businessman in the eyes of your investors, creditors, and customers.
Make sure you obtain all the permits and licenses necessary to start a franchise. For more details connect with your state corporation and get in touch with your attorney.
Each business requires different tax obligations, and permits and licenses to be applied. There must be some involving a franchise business in your country and state. It is vital to get all the required documents readied and duly signed to avoid any penalty or fine.
You may also have to apply for an Employee Identification Number from your state’s IRS.
Step 6: Take Training to Run the Franchise
The next important step you must take is participating in the necessary franchise-training program. The training will be provided by the franchisor, either at your chosen location or at their headquarters. The training may happen before you sign the agreement or while you are signing it. It may take a few days to several days to take comprehensive training.
The training will teach you everything you need to know about the company, its history, its business practices, ethics, value, and culture, about the products and services, the supply chain system and rest of the business operations, such as filing taxes and permits, bookkeeping, accounting, creating reports, billing and raising invoices.
The franchisor will also provide training in marketing, advertisement, hiring employees, managing storefront and negotiating with suppliers. You will be provided both on-site and classroom training based upon your business.
Step 7: Open Your Business for Customers
A grand opening is always a novel idea, especially when it is a franchise business. Consult with your franchisor about good opening ceremonies ideas. Plan your opening day in an attractive way. Make sure you set aside 20% of your start-up costs for the opening ceremony. Make sure you are able to invite local celebrities or influencers to help spread the word to the public.
Advertise in newspapers, put hoardings, and distribute pamphlets in and around to let customers know that you are open.
A franchise has enabled many people to achieve success and fulfill their dreams of owning a business. Hope our guide genuinely takes you one step closer in fulfilling your dream. If you are looking for more business ideas, visit our website.