For those looking to launch in the business world, the path to success is littered with questions. Even for those who have access to a marketable good or service, there are a lot of unknowns to face at the beginning of the journey. One of the many things would-be entrepreneurs wonder is whether a franchise is the best option for their business venture.

In this guide we’ll break down just what a franchise is, as well as discuss some of the benefits of starting one. We’ll then follow the steps on how to start a franchise business so that you have a better understanding of what the whole process entails. 

What is a Franchise?

A franchise is a type of business that involves selling products or services from an established trademarked brand name and business system. As the franchisee, you pay a royalty to the franchisor to do business under their name and system.

There are two types of franchise relationships: Business Format Franchising and Product Distribution. Business format is the most common and recognizable of these two options. This is when the franchisee purchases the trade name, services, and/or products from the franchisor.

They also typically get things like development support, training, brand standards, site selection, quality control, business advisory support, and even a marketing strategy. Product distribution is larger in scope and seen in big industries–things like bottling, gasoline, automotive, and other manufacturing spheres. In this guide, we’ll be focusing on the business format system. 

The benefits of starting a franchise

There are several reasons that starting a franchise is an excellent way to enter the business arena. First and foremost is the level of support you receive. 

Support Systems

When you buy into a franchise, the franchisor is invested in your success. After all, you’re out there representing their brand! Typically, they provide a huge selection of tools to help guide you. This include things like: 

  • Training for both your and your management team
  • Marketing and advertising (both initial and continuing)
  • Site selection as well as site development guidance
  • Research and development services for new products
  • Headquarters and field support

A Recognizable Brand Name

One of the most difficult tasks of starting a business from scratch is creating brand awareness and loyalty. When you purchase a franchise, that work is already done for you. You simply step in as the representative of a well-known and reputable business that already has a following. 

Of course, it’s important to choose a franchise wisely. A little research will go a long way in determining whether a franchise is one that stands behind its products and holds its franchisees to a standard customers can trust. 

A Higher Rate of Success

One of the reasons that so many new businesses fail is that too often not enough revenue is generated to cover start-up costs and they fold before they can support themselves. A franchise business can be started at a low price point and, with strong corporate branding support, can launch more quickly. 

What types of franchises can you start?

There are a huge variety of franchise opportunities out there, and they exist across endless industries. There are food franchises, retail franchises, service franchises, and hospitality franchises, just to name a few. Some companies are franchise-only, while others have corporate as well as franchise locations. Here are just a few well-known franchise companies: 

  • H&R Block
  • Starbucks
  • McDonalds
  • 7-Eleven
  • Marriott
  • Wendy’s
  • ServePro
  • Remax
  • Hilton
  • Century 21

The 8 steps to starting a franchise

So now you may be wondering, “how do I start a franchise?” Opening a franchise is something that almost anyone can do. You don’t have to have a ton of business experience because you’re supported by the franchisor. There are, however, some steps that you need to follow to get started. 

1. Choose a company that aligns with your business and personal goals

Take some time to think about what kind of business makes the most sense for you. For example, if you’re someone who loves working with animals, something along the lines of pet care or grooming might be a good fit. You’re also more likely to work with passion if you choose a company that aligns with your own values and entrepreneurial strengths. Finally, what are your goals as a business owner? How do you plan to achieve these goals?

2. Incorporate your business

This step will create a legal barrier between your business liabilities and your personal assets, as well as qualify you for tax breaks that are unavailable to a sole proprietor. Corporations and LLCs are also seen as more credible by customers and investors, and in fact more franchisors prefer to work with an incorporated business. 

3. Do your research

Don’t dive into any franchise without first taking a good look at local market conditions. You want to invest in a business that is a sure bet to succeed in your area. Some good places to turn to for solid information include the Small Business Administration (SBA), the business school at your local college, or even private market research firms. 

You can then expand your research by contacting the franchisors on your short list. By law they have to provide you with a document called the Franchise Disclosure Document, or FDD. This offers great detailed information on their franchise opportunity, and is a good springboard for further questions you may have. 

This document also has contact information for current franchisees, and those who left in the past year. Reach out to these individuals to find out more about their experience with the company. 

4. Pitch to investors

Create a detailed business plan so that you can present an organized pitch–anyone investing capital in your venture will want to know just how you plan to use it. You’ll need enough to cover your franchise fee, start-up costs, and the period of time before the business is solidly in the black. Some people you can pitch to include:

  • The franchisor 
  • A bank or financial institution
  • Family members or friends
  • If you don’t qualify with a bank, you may be able to secure a loan backed by the SBA

5. Sign and file all paperwork

First, sign your franchise agreement. It’s best practice to hire an attorney to review the document before you do so, to make sure that you completely understand all of your rights and obligations.

Next acquire all applicable licenses and permits to conduct business in your area. The necessary documents will vary by state and locality, so make sure you know what you need. If you fail to obtain and maintain the proper permits and licenses, you may be subject to government fines and termination of your franchise. 

6. Open a Business Bank Account

It’s important to separate your business and personal finances. This is something not all new owners realize but it has the potential to make or break your business. If you want to easily manage your finances, a digital banking app is the perfect solution.

NorthOne was designed to help small business owners easily manage their money by connecting their back office to their bank account. With NorthOne you can load cash directly into your NorthOne Account at one of +80,000 Green Dot locations across the US. Apply for an account here

7. Improve your space, train, and hire

Now it’s time to prepare your physical space and assemble your team. Most franchisees are responsible for building or improving their operating space. While the contractors are working, you should also begin the hiring process. Leave plenty of time for your franchisor to offer training to you and your team. This will help you assimilate into the franchise culture. 

8. Open to the public

It’s finally time to open your new business to the public! As a franchise you will have the advantage of your franchisor’s guidance through the entire opening process. They also assist with advertising,  often running a marketing blitz to get the word out. 

It’s also a good idea to reach out to your local chamber of commerce and other business groups and invite them to the grand opening. This will help you with networking and help spread the news about your business in the community. 

How much does it cost to start a franchise?

Because starting a franchise offers such a variety of choice, the start-up cost can fluctuate enormously. Depending on the size and popularity of the franchise, you could end up paying anywhere from $10,000 to $5 million dollars. However, on average costs for most franchises average somewhere between $50,000 to $200,000. 

This is why it’s important to have a solid business plan in place at the start of the process. Few people have the capital required to start a franchise, so most will have to convince investors to join their venture. 

How much money can you make opening a franchise?

There are even more factors to consider when figuring how much money can be made opening a franchise. Of course, size and popularity factor in, as well as location. It can also depend on your talents as a business owner. Franchises are great for those who don’t have a lot of business knowhow, because they offer so much support–but a franchise can really boom under the management of someone who really does understand business. 

So the short answer is: it depends. However, a little Google research will show that the national average income in the United States for a franchise owner ranges from $50,000 to $200,000 per year. But it’s important to remember that not every franchise succeeds. That’s why you need to consider the risk of loss, as well as potential income. 

In the end, it’s important to remember that research and due diligence will help greatly in increasing your chances of success in the business world, even in the assistance-heavy sphere of franchise business. Follow the steps outlined in this guide to fulfill the requirements to start a franchise in order to gain the best footing on the road to business success.

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