When a small business owner decides to become a franchisor, they are making a major transition. Knowing how to start a franchise is not always apparent, even to an entrepreneur who has successfully built and grown a recognizable local brand. The franchise industry is its own separate realm in the world of business building, but a careful evaluation, ample investment resources, and a solid understanding of regional and national market opportunities can lead to substantial success over time.
However, building a franchise can be risky, even for small establishments that thrive as local businesses. Knowing and preparing for all the steps that take a business to a franchise level are imperative to survival and success. Typically a franchise starts with a concept that’s unique and marketable, but also reproducible.
This means that the product or service can be delivered through a systemic approach, such as through standard employee training, easily sourced or delivered components, and equipment that can be implemented in multiple locations. Standardization is extremely important in a franchise business model.
This ensures consistency in what’s being offered to customers, regardless of each brick and motor location. Establishing a concept that’s marketable and standardizable requires capital for research, development, and adjustment. A prospective franchisor will also need to learn and prepare to meet all state and federal legal requirements. Franchising requirements often vary state-to-state, which can determine the direction of a brand early on.
Franchisors will also need to determine what’s required of the franchisee, as well as what will be provided to support their success. This includes royalty percentages, territory specifications, training resources, marketing requirements, etc.
Once the franchise model is established and registered, then there is the process of selling individual franchises to qualified entrepreneurs and managers who are ready to invest. Following these early stages, a business owner will then need to maintain and support all establishments representing their brand.
Franchisee Vs. Franchisor
There is a world of difference between starting a franchise and investing in one to become a business owner—but for a brand and concept that’s already been established. An entrepreneur who opens a franchise must be ready to invest, manage, and adjust. For some hopeful business owners, it’s easy to think that opening the doors with an existing brand will be easier and less expensive than starting as a small local business.
But on researching how to become a franchise owner, they soon discover it’s not always a turnkey route to entrepreneurial independence and success. Some special advantages come with buying into a franchise, such as working from an established business model, often with a recognized brand and management system. An existing body of customers and proven concept is why many people choose to own a franchise rather than start their dream business from the ground up.
However, a franchisee must meet and maintain requirements set by the franchisor, even as the franchisee is often responsible for their own LLC and business ownership requirements. A franchisee will typically be responsible for choosing a location within their assigned territory. They will need to determine how a space will function and be responsible for construction, repairs, etc.
They still must comply with all franchise requirements, including installation of specific equipment and furnishings, as well as decor and signage. The franchisee is responsible for maintaining these assets. Franchisees must be prepared to recruit, train, and manage employees, although corporate management may guide these processes. All business and employee policies for individual franchises will need to be consistent with the corporate brand. Once the franchise is open, it’s up to the franchisee to grow and adjust to ensure success.
Questions To Ask When Buying A Business or Franchise
Before buying an existing business, whether opening a franchise or looking into independent and local businesses for sale, prospective entrepreneurs must ask themselves some important questions. No matter the type of business or establishment, a prospective buyer will need a combination of business savvy, management and planning skills, and financing resources. Just like starting a business, buying an existing establishment will require meeting certain legal and regulatory requirements. The buyer should also have questions prepared to ask the current owner.
This is imperative for assessing risk and determining a course for success—whether that will require making small improvements or correcting existing problems and making major changes. A prospective owner should learn why the current owner is selling, how long they’ve owned the establishment, and their annual revenue, as well as their profits since opening. Questions on their local market and customer base, current liabilities, and the value of their business vs. the asking price are also important to address.
If these factors are less than ideal, that doesn’t necessarily amount to a bad investment, but a prospective buyer should be prepared to correct these problems in order to succeed. Identifying weaknesses prior to the sale can also serve as leverage in negotiating a fair price.