One of the best ways to start a new business is by capitalizing on a franchise opportunity. Not only do franchise opportunities come with premade marketing collateral and high brand awareness, but you get extensive business support from the franchiser.
When was the last time you made a fast food stop or purchased a cup of coffee before work? If the brand is recognizable and has multiple locations throughout your city or town, like McDonald's or Dunkin', it's quite possible your favorite food joint is a franchise.
In fact, the US Census reports that 11.4% of all businesses in the US are franchises. While restaurants make up the bulk of franchise opportunities, gas and convenience stores, car dealerships, fitness, real estate, and hospitality sectors also make up a sizable chunk.
Determining the profitability of a franchise isn't an exact science, but there are a few factors to consider, including the unit growth, new franchisee success rate, and the franchiser's financial statements.
7Eleven, for example, flies accepted franchisees to their support center in Dallas for training. They also have a resource center with seminars and events. Not all franchisers, especially small ones, will have extensive resources like 7Eleven, but make sure they offer basic training.
Popeyes is consistently one of the top franchises to own in Entrepreneur's Franchise 500 Rankings. It's a well-known fast-food brand with a global presence, strong advertising strategies, and well-developed core philosophies.
Great Clips has been in business for 30 years and provides its franchise owners with up-to-date technology and training. It has invested heavily in market research to provide customers with the best service and experience.
This quick-service restaurant brand has been around for 50 years and has developed financial stability and brand recognition. It has a proven operating system and gives you access to restaurant resources and a community of more than 350 franchisees who know the business.
Ace Hardware exudes a local feel, which starkly contrasts the big-box home improvement stores like Home Depot and Lowe's. This franchise prides itself on stellar customer service and store-brand products.
The initial investment in a franchise can be pricey, and range anywhere from a few thousand dollars to over a million. If you're looking to purchase a franchise at a lower price point, there are options for you in a variety of industries.
JAN-PRO is a commercial cleaning franchise whose clientele is other businesses. They offer three options for franchising: international master franchise, executive business, and home-based opportunities.
If you're looking to start a low-investment, exercise business, a Jazzercise franchise might be a good fit for you. It offers various price points to begin a franchise and you can find the one that aligns with your budget.
This bakery is unique because, despite being a franchise, it has a "Mom and Pop shop" feel. There are locations across the United States, and its cakes have been featured in popular media outlets like Food and Wine Magazine, Food Network "Unwrapped", and Franchise Times.
Pure Barre is a popular, boutique fitness brand with nearly 600,000 clients. The business offers multiple revenue streams: bar classes and activewear. And it provides support and training for real estate, operations, consulting, marketing, and more.
Soccer Shots is a children's soccer program with a focus on character development. It has a low overhead cost, supports its franchisees, and has well-established relationships with national brands like Adidas and the U.S. Soccer Foundation.
That does come at a premium cost, such as franchise fees and ongoing royalties paid out to the franchisers. However, you will see a high return-on-investment once new customers begin walking in almost immediately after opening the location.
In addition to dictating how your business runs, franchises also lack autonomy when it comes to finances. Your franchisor will most likely control all aspects of the franchise's financial dealings. Be prepared to routinely submit financial statements such as your balance sheet and income statements.
In addition to startup costs, franchise owners should budget funds for reinvestment in the business and other fees stipulated by the franchisor. These additional costs can come in the form of training fees, royalty fees or other services like advertising.
First up, make sure that you have a good enough credit score to qualify for loans. Having a savings account is also essential. Keep in mind that some franchisers could require you to pay for the up-front fee without a loan. For that reason, you should consider franchises that accommodate your unique financial situation.
Small business loans are an excellent option for covering your franchise fee and up-front investments. Depending on your financials and your lender, you can qualify for hundreds of thousands of dollars, which will more than cover you during the setup phase.
Most franchise consultants are paid salespeople, according to Sean Kelly. Consultants want to get you signed onto a franchise deal as quickly as possible, because their cut is often half of the franchise fee of $20,000 or $30,000. Ask them to make their financial arrangements clear, up front.
I am a New York City-based journalist and staff writer for Forbes Magazine and Forbes.com covering entrepreneurship and franchising. I'm interested in how individuals inspire a team and lead it to success, and all the wisdom they earn along the way. I have a degree in business journalism from Columbia University, have worked in daily newspapers, and online media; and have spent the past several years covering entrepreneurs, startups, leadership and technology. Send me sensitive documents and tips (NOT everyday pitches) at www.forbes.com/tips/
I am a Lifestyle Reporter for Forbes, covering the business of beauty and style, as well as the arts, luxury real estate and more. I'm a former television reporter for NY1 News, where I covered all things Queens, NY and got my start in business news as a greenroom greeter and PA at Fox Business. I am a graduate of Columbia Journalism School and an adjunct professor at the NYU Arthur L. Carter Journalism Institute. Twitter @TanyaKlich
Franchisors typically set minimum requirements to ensure that all their franchisees are qualified in terms of personal finances and professional experience. This is because the success and/or failure of their franchisees directly affects their business reputation, brand, and bottom line.
It is also a good idea at this point to draft your timeline carefully for buying a franchise. This will include how much time you can allocate toward initial research, contacting franchisors, reviewing franchise disclosure documents and franchise agreements, obtaining financing, and choosing a location.
You can find a lot of options for franchises based on different industry types, available locations, and initial investment required. A great place to start looking for these options is through various franchise websites that list franchises for sale.
An FDD, also known as the Uniform Franchise Offering Circular (UFOC), is a 50-plus page document that outlines your responsibilities as a franchisee, the fees you need to pay, and the rules and regulations that you need to follow. It also includes information about the franchisor, including its financial and legal history. Getting an FDD will give you all the information you need to know if a potential franchise opportunity is a good fit.
Franchisors are mandated by the Federal Trade Commission (FTC) to provide prospective franchisees with an FDD at least 14 days before any binding agreements are signed and payment made. Franchisees are advised to read and review the FDD carefully. All FDDs follow the same 23-step format. However, the level of disclosure and transparency varies from one franchisor to another.
Typically, banks, lenders, or external investors who will help finance your franchise startup will also want to see the FDD. As the FDD will affect many aspects of your business plan, it is important that you know how to read and understand it thoroughly. Read this guide on how to read a franchise disclosure document to help you understand each section and know what to look out for.
If you need some professional help figuring out the franchise disclosure and other legal documents, check out Rocket Lawyer. It has expert attorneys available to offer you legal advice. Visit Rocket Lawyer to learn more and get your first seven days free.
Meanwhile, a company that has no plans for growth or expansion could mean it lacks a strong vision for the future and intends to remain static. This could also jeopardize your business because a franchisor that does not plan to grow will limit your prospects as a franchisee.
After you review and sign the franchise agreement, the next step is to obtain financing. You will need funds to cover the costs associated with buying a franchise. The first that you need to pay is the franchising fee, which typically is due after you return the signed agreement. 781b155fdc