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Franchising can be a tempting business avenue to pursue. Here's everything you need to know.
More times than you can probably remember, you’ve likely visited a 7-Eleven, KFC, McDonald’s or Dunkin’ to enjoy the convenience and services of a brand you know and trust. These businesses are products of the business expansion practice called franchising. Their owners invested in a known brand in hopes of finding business success.
Franchising allows bigger businesses to branch out and grow while giving entrepreneurs and small business owners a chance to run their own operations with the help and support of a larger organization with a proven formula for success.
Franchising is a tempting way to find business success. However, it’s essential to understand what’s involved before taking advantage of this less risky – yet still rewarding – option for starting a business.
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A franchise is a business model where a business owner provides products or services under the branding and rules a parent corporation sets. The parent corporation assists its franchisees with marketing, inventory and support. When opening a franchise, the franchisee pays the franchisor royalties and usually submits an initial franchise fee to do business under the brand’s name.
Essentially, franchises combine working for someone else and working for yourself in two categories:
Business franchising isn’t for everyone; many would-be entrepreneurs prefer to start a business from scratch. Both franchising and starting a new business have benefits and disadvantages, and being a business owner in any capacity is risky.
Here’s a look at how franchising differs from starting a new business:
Franchises offer many benefits to owners, including the following:
With an understanding of franchising’s benefits, here’s how to get started opening a franchise.
Fully research franchise options and determine which companies will offer you the best return on investment and provide you with the best chance for a consistent income stream.
Financing is a significant factor when choosing a franchise. Franchising is essentially leasing a business, so you must ensure it’s a financially worthwhile venture.
Consider the following factors when evaluating potential franchise investments:
After factoring in franchise costs and determining if the franchise would provide a good ROI, consider its potential. For example, what competitors are in your area? Do your target customers live nearby?
Ensure there are no other franchises of the parent business near your location. Although some franchises can support multiple locations, such as Dunkin’ or Starbucks, it’s crucial to ensure you’re not setting up a competitive location that could underperform.
To ensure you’ll be granted a franchise and ultimately secure funding, creating a business plan is crucial. You’ll present your business plan to investors and others to share your goals and profitability expectations.
To get the process going, the franchisee must prepare their paperwork and business arrangements. You’ll be asked to sign a franchise license agreement. Review and understand the agreement before signing it and committing to the franchise.
You’ll also need to choose your legal structure, such as forming a limited liability corporation (LLC). Franchisors require different business entities based on their overall structure, so work with the parent company during this process.
Once you’ve established and solidified your business proceedings, it’s time to find a place for your business. Your franchisor may have requirements on necessary space, so consider your agreement’s conditions before securing a property lease.
When you choose your location, ensure you’re not too close to a fellow franchisee or company-owned building.
The next step is hiring employees. Your franchisor may assist you in the hiring process and offer training programs and resources. Whether it is an intranet system provided by the parent company or detailed job descriptions, the franchisor can help you with your search for employees.
With everything in place, it’s time to plan your opening day. When it comes to services like marketing, consult with your franchisor and engage in social media marketing and local press outreach. For in-store activities, check to see what is allowed within your franchise agreement. If possible, try to create a memorable first impression with the community.
Paving the way for a new business isn’t easy. However, opening a franchise brings the benefits of entrepreneurship with the resources of a large parent company. Business ownership at any level is risky, but franchising can bring career fulfillment with a measure of support. Conduct your franchise search thoughtfully, and consider hiring legal assistance to guide your path.