A franchise can be the best of both worlds. When you become a franchisee, you get to launch and own your small business without having to create one from the ground up. A franchise means buying into a proven business model, one with a market-tested product, branding and an established customer base. When it works, this can be a great way to become your own boss and stay that way.
So how to buy a franchise? Here are seven steps that can take you from eating Big Macs to selling them.
Step One: Examine Your Own Viability
While buying a franchise lets you share in the company’s success, the company will want to make sure you’re a viable partner as well. Specific franchise requirements will vary, but you should be prepared to review factors such as your:
Liquidity, in particular, will matter because buying a franchise costs thousands of dollars.
Before you begin seriously shopping for a franchise make sure that these vital statistics all look good. If you’re sitting on a 580 credit score maybe let that rehabilitate for a while before you try to buy into the Wendy’s kingdom.Step Two: Research Available Franchises
It’s important to do your research to find a franchise that’s right for you. There a number of websites, like Franchise Gator or Entrepreneur, that you can use to research available franchise opportunities near you.
Not every company will offer local opportunities. Look up the options where you want to build your business and then settle in for the real research. Your goal here is to narrow down the options to just one or two possibilities. Picking the right one or two can make all the difference between success and failure.
You should examine issues such as:
Finally, look at your USP, or unique selling proposition. In simple terms, what makes this business stand out? What will make people drive to your gym or doughnut shop over any others? It might be the location that you’ve got your eye on, or it might be a gap you’ve identified in the market. Whatever it is, be ready to explain to yourself and to anyone else why this will work.
By the time you’ve considered these issues (and more), you should have narrowed your list down to the one or two businesses you’d really like to run.Step Three: Contact the Franchise You’re Interested In
Reach out to the franchise you’ve selected to apply for the business. You will typically do this through the company’s website, although the websites we noted above will also help you find the contact information for each given franchise.
First, this will involve an application and questionnaire. If you have not written a formal business plan for your franchise yet, do so now. It will be an important part of the application process and will demonstrate to the franchise that you have carefully thought through this opportunity.
This initial application will differ from company to company, but it will typically include questions about your work history, plans for your franchise and your personal finances. It may ask you to provide proof of finances, such as bank statements and deeds. Answer these questions thoroughly.
If the franchise is interested, it will provide a franchise disclosure document (FDD), previously called a uniform franchise offering circular (UFOC). This document lays out the details of your costs and responsibilities as a franchisee. It also gives you critical data about the health of this company. Read this document carefully. Pay particular attention to information such as:
Again, the details on this step will vary across companies. However, once you have been sent a copy of the FDD, typically the franchiser will want to meet you. Sometimes this will happen in personal meetings. Other times the company will host discovery days, which are group events during which franchisers and franchisees can meet.
During this process you will get a chance to meet the corporate staff and decide if this is a good personal and cultural fit for you. They’ll do the same thing, and may ask for further application paperwork before or during the meeting. Think of this like a job interview on both sides. If it goes well, you will get your legal documents.Step Five: Carefully Review the Franchise Agreement
If the company sees you as a good fit, it will provide the franchise agreement. This is the formal contract that gives you the right to open up a business in the company’s name.
You should do two things with the franchise agreement:
If everything looks good, go ahead and sign.Step Six: Secure Financing
While the franchise will expect you to put up your own money, the truth is that most people can’t afford the full costs of opening a franchise by themselves. This can cost hundreds of thousands of dollars, depending on the business you’d like to open, and not many people have that kind of cash on hand.
Your most likely sources of funding are small business loans through a bank or with assistance from the Small Business Administration. To get this funding you will need to have all of your paperwork in order. This will include:
You may also want to consider individually financing pieces of your business if startup will involve capital assets. If you need to buy vehicles or any buildings, you want to handle those through loans secured against the asset.Step Seven: Choose a Location and Begin
With the contracts signed and financing secured, you are ready to start your business. Now it’s time to begin shopping for a lease, looking for staff and buying equipment.
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