HOW TO START A FRANCHISE: Meaning, Examples and How to Get One.

HOW TO START A FRANCHISE
PhotoCredit: RestaurantIndia

The owner of a franchised business gives other people the right to run that business from their own locations, which means selling the owner’s products and providing the owner’s services. Every franchise location is independently owned and run. In exchange for using the franchise model, each location pays royalties to the franchisor, who owns the brand. This article talks about the requirements to start a franchise business with no money, its examples, and the advantages of franchising.

Overview

In the United States, franchises are a very common way to run a business. Most big cities have a lot of franchise stores, and it’s hard to go more than a few blocks without seeing one. McDonald’s (NYSE: MCD), Subway (NYSE: SUB), UPS (NYSE: UPS), and H&R Block (NYSE: HRB) are all well-known franchises (NYSE: HRB).

You can get a franchise in almost any business you can think of. Creating a franchise with one’s own product and brand name is one way for a business to get a bigger share of the market or expand its reach without spending much money. The original company, called the franchisor, sells franchises to new businesses. 

A franchisee is a business owner who has paid the franchisor for the right to sell the franchisor’s products or services using the franchisor’s brand and business model. The way to start a franchise is very similar to how to start a business from scratch. When you buy a franchise, you get established customer recognition and a tried-and-true way to run your business right away. 

More Information

One benefit of having a stand-alone store in a larger chain is that you already have customers. There is no minimum credit score that everyone agrees on to become a franchisee, but most require a score of 680 or higher. But there may be hidden costs and things you need to get ready for ahead of time. These are the main costs of getting a franchise up and running:

  • A franchise might cost between $20,000 and $50,000 to start up.
  • As a bare minimum, a service business should have between $50,000 and $60,000 in liquid assets, and a facilities-based business should have between $75,000 and $100,000 in liquid assets.
  • “Franchise royalties” are fees that must be paid on a regular basis. They range from 4 to 12 percent of a franchise’s gross income.
  • A franchise requires an initial investment and ongoing costs, like renting or buying a storefront, paying employees, and advertising.

Requirements to Start a Franchise

There are many steps to take after deciding to start a franchise business. To meet the franchisor’s requirements, you will need to carefully plan every step of the process, from choosing a location to getting the permits and lease agreements you need. Here are some of the most common requirements to start a franchise:

#1. Check the Prices

When looking into franchise opportunities, you need to keep track of a number of different costs. In addition to the normal costs of running a business, the franchiser must be paid a royalty every year. There are also extra costs, like transportation, company training, and any local taxes.

#2. Make a Business Plan

Even though a lot of the business has already been decided, you are still in charge of the most important parts. Your business plan is your chance to show why you would be a good person to run the company’s resources. You should also say more about what you want for the neighborhood you want to move into. Since you’re the expert, it’s best for the franchise to listen to you.

#3. Get the Franchise’s License Agreement

Most of the time, a franchisor will give a franchisee a contract that explains how the franchisee is expected to run the business. Before you sign, read it carefully and make sure you understand all of the requirements. Find out what the franchisor wants from franchisees and make sure you’re sure you can meet those expectations.

After making a business plan, people start an LLC or company. Based on how they are set up, franchisers need many different types of legal entities to run franchises. In any case, the fact that these businesses exist is a sign that the endless scramble to classify company expenses is coming to an end.

#5. Pick Out Your First Business Location

Once your business is up and running, you can start looking for a permanent place to run it. Most likely, the franchisor will have rules about the size and layout of the storefront that you must follow. If it’s a restaurant, they may also have rules about what equipment and fixtures need to be put in.

#6. Recruit Workers

As soon as you have a place to work and contracts in place, you can start hiring. If the franchiser has already set up job descriptions and titles, it will be easier to post jobs and start looking for qualified people to fill them. The franchise owners may also have an internal job posting system in case employees from other franchise locations want to move to your location.

#7. Think About the Good Things

Before you spend time and money on starting your own franchise, make sure there isn’t already one in the area that is similar to yours. Some businesses, like Dunkin’ Donuts, can do well in more than one location in the same city. However, you should still be careful about opening a storefront in a place where there are already competitors.

#8. Check Out Current Franchises

One site where you can look for franchises to buy is Franchise Direct. It sorts franchises by what kind of business they are if they let people work from home, and how much they cost. When looking for a franchise, keep these things in mind:

  • Fees that the business world charges.
  • There must be money in the bank.
  • Average monthly/yearly income.
  • Payment for using a symbol that is owned by someone else.
  • Putting money into ads.
  • Costs on top of that.

Franchise Business Examples

You will definitely come across examples of franchise companies, and each will have its own set of challenges and benefits. The following are the franchise business examples below;

#1. Franchises for Businesses

This model is the most popular because it makes the franchisee’s work much easier. The franchisee can use all of the franchisor’s infrastructure for marketing, running the business, and training. Fast food franchises and business services franchises are two of the most popular kinds of franchised businesses.

#2. Investment Franchises

In these kinds of businesses, franchisees must use their own money to get started. This could be done with money or by having the franchisee hire and manage its own management team. Hotels and chain restaurants with more than one location are two such examples.

#3. Conversion Franchises

You could think of this franchise as a type of business-format franchising where an acquisition is required. They can grow their business by buying similar businesses and turning them into franchises. This lets the company stay in business and use the infrastructure of the franchisor. It’s a good deal for both sides: the franchisee can grow quickly, and the franchisor can make more money (and reduce competition).

#4. Job Franchises

Most of these franchises are easy to start and run on a small budget. Some of them can even be run from home. Most of the time, you don’t need heavy equipment or a lot of materials. This type of business includes things like cleaning franchises, landscaping franchises, and childcare franchises.

#5. Product Franchises

In this model, it is the franchisees’ job to sell the company’s products and services to customers. Most of the time, the franchisor only gives the franchisee the trademark and not the storefront or distribution network. Product franchisors are usually businesses in the automotive, machinery, and soft drink industries.

How to Start a Franchise Business With No Money

You can still own a franchise even if you don’t have a lot of money. The following are the requirements to start a franchise business with no money:

#1. Money From the Franchiser

Companies in the market know that not all new businesses can count on getting a large amount of seed money. Because of this, a lot of companies offer financing for franchises. The franchisor will give you a loan to pay for the start-up costs. Even though this strategy usually requires good credit and a big initial investment to show commitment, it could be a good way to get started if you don’t have a lot of money.

#2. A Loan From the Bank

Some people who own startups would do well to get a loan from a regular bank. A bank loan requires you to meet certain requirements. Different banks have different rules about what you need to do to get a loan, but in general, you’ll need a good personal credit score, a credit usage ratio of less than 30%, and a history of managing your money well. The bank will look at the business plan for the franchise you want to buy to see if it has worked for other franchisees. This means that it’s easier to get a bank loan if your brand is well-known and trusted.

#3. Partnerships

If you don’t have enough money to start your franchise on your own, you might want to find a financial backer. Relationship partners can be anyone, like family members, friends, coworkers, and so on. Keep in mind that when you join forces with someone else, you give up some control. Thus, make sure it’s someone you can trust, and always have a partnership agreement in place before establishing a business together. This will help make sure that everyone knows what they are in charge of, how much they can earn, and how the business will be run.

#4. Home Equity Loans

Some business owners take out home equity loans to pay for the start of their franchise. If your mortgage payment is less than the value of your home on the market, you can get a home equity loan. The difference between these two numbers is your home’s equity. It is also one of the examples of how to start a franchise business with no money.

What Are 3 Advantages of Franchising?

It can be freeing to decide to go it alone on a personal and financial level. There are many benefits to buying a franchise instead of starting your own business. Below are the 3 advantages of franchising;

#1. Further Help

Starting a franchise is a lot like starting a video game on the easiest level. The franchisor will help you get your business off the ground by giving you training, resources, process flows, and branding. It is one of the 3 advantages of franchising.

#2. Lessen the Attempt Failure Rate

Most franchised businesses fail less often than other businesses. Putting money into a franchise is like joining a team that always wins. The extra help and business tools you have access to can make a big difference.

#3. Made to Help People Recognize the Brand

The best way to market your business is to give it a name. Most of the time, though, that takes a lot of work and money. The work of coming up with a brand name for a franchised business has already been done. People know your brand and what it stands for. It saves time and creates a ready-made customer base.

#4. Increase in the Ability to Buy

There are sometimes good deals on things. Several franchisors have worked out deals with suppliers for network-wide discounts that can help you save money. On the other hand, you might not have as much control over which vendors you choose, and prices might be higher.

How Much Is It to Start a Franchise?

Many franchises have start-up costs between $100,000 and $300,000, but some may only cost $10,000. Franchise costs vary a lot depending on things like the industry, the location, and the type of franchise.

Do Franchise Owners Get Paid?

Most franchisees pay for their own business and do not get a salary. As a business owner, your profits will come from what is left over after all the company’s operating costs have been paid.

Is a Franchise Easy to Start?

Starting a franchise is a hard business to get off the ground. Going the franchise route can make starting a new business easier in some ways, but it’s still not a walk in the park. But if you follow the tips above, you will have a much better chance of being successful at this exciting task.

How Do You Qualify for a Franchise?

There are as follows;

  • Quantitative evaluation of a person’s ability to pay back loans.
  • Money saved up.
  • On deposit.
  • Have experience in the field.
  • A history of success as a manager.
  • There needs to be full funding.
  • Continuous expenditures.
  • Getting help and being taught.

Can a Franchise Make You a Millionaire?

Even though owning a franchise can help you become financially independent, it’s not a guarantee. Even though you can increase your chances of success by choosing the right business in the right market and going into it with business experience and/or money, you may still not be able to make as much money as you want.

Can a Franchise Fail?

There is no one reason why a franchise fails, but there are some signs that you should pay attention to. Here are some of the most common reasons why franchises fail: Most of the time, franchisers sign deals with franchisees who aren’t qualified, haven’t done their homework, don’t have enough money, or are just plain stupid.

What Is the Disadvantage of Opening a Franchise?

The disadvantage is below;

  • There aren’t many chances to be creative.
  • There are detailed financial reports given to the franchisor.
  • There are several levels of support.
  • At first, you may have to make a lot of investments and pay a lot of costs.
  • Contracts and other legal agreements are short-term.
  • You are in charge, but you don’t have as much say as you might like.

Conclusion

Starting a franchise isn’t easy or cheap, so it’s important to work with a well-known parent company. Franchising is one of the most flexible ways to sell products or provide services. If you work with a franchisor, you can get the help you need to start a successful restaurant franchise.

How to Start a Franchise FAQs

What franchise makes the most money?

  • At Anytime Fitness.
  • McDonald’s.
  • A UPS Store.
  • Jersey Mike’s Subs.
  • Dunkin’
  • Sports Clips.
  • 7-Eleven.
  • Papa John’s.

What do you need to do to get a franchise?

  • The ideal credit score range is 680+.
  • Assets, in monetary terms.
  • Free money.
  • Have worked in the field before.
  • Professionalism in management.
  • Quantitative expression of the sum needed to be spent.
  • Constant expenditures.
  • Instruction and help.

What do people who own franchises make?

Royalties and other fees paid by franchisees are the main sources of revenue for a franchisor. One source of income for a franchisee is the revenue gained from their business’s product or service sales. This is the sum of money remaining after operating expenses have been deducted from total income.

  1. WHAT IS A FRANCHISE: Types, Tax & Advantages
  2. FRANCHISE: What It Is and How It Works
  3. BUYING A FRANCHISE BUSINESS: Benefits, What to Look For & Best Practices
  4. INVESTING IN A FRANCHISE: Pros and Cons
  5. FRANCHISE OPPORTUNITIES: The Top Best 21 Options

References

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