How to Start a Franchise

Franchise owners put a lot of hard work into making their business a success, so don't try to do something that doesn't interest you.

Ask other owners what their experience has been like. In particular, find out what kind of relationship they have with the franchisor and what level of personal involvement is required in their business.

Find out how much the franchise fee is and what additional costs may be part of your upfront investment. Franchise fees vary from a few thousand dollars to $1M, so make sure you pick a franchise model that you can realistically finance.

Is there too much competition? Has anyone else started a franchise that is similar to the one that you want to open? It will be difficult for you to make money in a saturated market, no matter how good the franchise model is.

Lenders and franchisers will be very interested in the details of your plan, so take lots of time to create a budget and research the market in your area.

A franchise business plan should include the following sections:

• Executive Summary.
• Business Description.
• Management Summary.
• Sales/Marketing.
• Financial Plan.

Your franchise should be set up as either a corporation or an LLC (Limited Liability Company). Creating a corporation or LLC for your franchise comes with a few distinct advantages:

• The business assumes liability, instead of you as the owner being held liable.
• The IRS has a different tax structure for corporations.
• Franchisors are more likely to work with an LLC or corporation.
• Your business may be able to qualify for special tax breaks.

In most states, you need to file Articles of Organization in order to set up a corporation. You can do this by contacting your state's Secretary of State department or small business office.

If you are forming a legal entity for your business with the intent of becoming a franchisee, you should seek counsel from an attorney who can give you legal advice and direction from this point forward.

Some franchisors offer their own financial assistance programs to franchisees. This means that when you meet with a franchisor, they can present you with a variety of customized loan options to help you secure the money that you need to start your business. Do some research about the franchise you are interested in to find out if this is an option.

Lenders like OnDeck, Funding Circle, and others offer a special category of loans called franchise loans. These term loans are designed to assist entrepreneurs with franchise fees and startup costs.

There may be people in your network who would be willing to partner with you by investing their money in your franchise. Share your business plan with potential investors if you want to seek private investment into your business.

You can think of the franchise agreement as a legally binding contract. This document is usually drawn up by the franchisor. The contents of a standard franchise agreement include:

• Legal disclosures.
• Details about franchisee payments.
• Franchisee obligations.
• Relationship between the parties.
• Special provisions.
• Franchisor services.

Essentially, a franchise agreement outlines exactly how the business relationship between the franchisee and the franchisor will function.

If you are opening a fast-food franchise, you need a location that can facilitate a drive-thru, customer parking, and full kitchen/dining area. Not only that, but it should be in a busy place.

Beauty salons, real estate agencies, and retail stores may have totally different location requirements, so don't assume that there is a one-size-fits-all solution. The franchisor may be able to tell you which existing locations have been the most successful.

Do your research before you decide on a location. Ask questions like,

• Are there competitors in the area?
• Is the property easy for customers to access?
• What kind of building does the franchisor recommend?
• Could the building be expanded if necessary?

You can advertise job opportunities at local job fairs, on your website, through social media, or with job posting sites like Indeed. The more exposure your job postings have, the better your chances are of attracting qualified candidates.

Some franchises have their own training programs that you can use to train new employees, while others are more hands-off and leave all training initiatives up to the owner. In either case, owners and managers must be familiar with the franchisor's standards and methods of operation before leading their employees.