How to start a franchise - 7 tips

Updated: Jan 27

What is a franchise?


In a franchise, one business ( the franchisee) pays another (the franchisor) to use the franchisor’s business model and trademarks. In addition to their business model and trademarks, franchisees typically receive support from the franchisor in training, advertising, and the supply chain. Although they can also receive support in other areas as well.


Franchises are excellent vehicles towards entrepreneurship. As starting a business from scratch poses uncertainty and challenges in building brand awareness and staffing among others, franchising provides an already proven model as well as supply chain support. Therefore it is an excellent option for those new business owners, as well as seasoned veterans.


We’re assuming that you have already weighed the pros and cons of starting a franchise and that you have narrowed down your choices. You have already determined what kind of franchise you would like to start, and maybe even a few specific franchisors.


Before you sign on the dotted line, be sure to pay attention to the following. Along with your due diligence, INFI’s franchise checklist should put you on the right course to start your franchise business.



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What are the Franchise requirements?


Franchisors will most definitely have a list of requirements in order to be a franchisee. For example, Chick-Fil-A is widely known to have some of the lowest franchise fees around - at only $10k. Yet, even with such a low start-up cost, Chick-Fil-A only accepts .13% of about 80k yearly applicants as franchisees.


That’s because the company has a rigorous vetting process that includes several rounds of interviews, essays, high school transcripts, and a demonstration of community involvement.


While Chick-Fil-A's process may not be the norm, it is standard practice for franchisors to require potential franchisees to have a certain net worth. Other requirements may include cash available, and even citizenship status.


Research


Surely you have already done a hefty amount of research into the type of franchise you want to run, however make sure to consult credible groups such as your local Small Business Development Center (SBDC) and the Small Business Administration (SBA).


Both are government groups with the specific purpose of supporting small business owners throughout the US. The SBDC connects you with experienced business owners aimed at helping you grow or even sell your own business. The SBA functions in a similar fashion, and can also help with financing and government support.


Both groups offer their services at no cost to you.



Franchise disclosure document (FDD)


A document that you should absolutely make sure is made available to you is the FDD. A franchisor is required to provide a franchisee with an FDD prior to signing.


An FDD will include a wide range of information such as startup costs, territories, legal obligations of each party, and royalties. In short, the franchise disclosure document is meant to provide all the information necessary for a franchisee to make a decision on whether or not to enter into business with the franchisor. However, make sure you still do your own research.


Location


Choosing a location involves more than just choosing a physical address to set up shop. Buying or leasing space are both options to consider depending on your business, and the franchisor may provide guidance on locations that work best.


Also, consider whether or not you will be required to build out your physical location. In such a case expect your franchisor to provide blueprints and additional guidance on custom fixtures and signage.


Training


Prior to your grand opening, your franchisor will surely provide you and your staff with training to indoctrinate you into the company culture. Expect to learn their best practices for selling their products and/or services, the systems they use, expectations, and policies.


Form an LLC or Corporation


For this step, you may want to consult with a lawyer on which entity works best for you.


Forming an LLC or corporation is a good idea as each brings with it different tax benefits and liabilities. By forming such a company you also separate your personal assets from your business, while also appearing more credible in the eyes of potential franchisors.



Open your doors!


Once you’ve had your location approved and built out, it’s time for your grand opening! Your franchisor may have promotional material and advertising available to assist with your launch.


If permitted, it may be a good idea to have a soft opening to gauge interest and maybe gain insight on what it would take to be successful in your market. When you do have your grand opening however, reach out to your local Chamber of Commerce and invite its members as well as the Chamber president.


Best of luck in your journey as a franchise owner! Be sure to consult multiple sources to prepare you for starting your venture, and be sure to invest in a good tech stack to make life easier.



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