How to Start a Franchise Business in 8 Steps

A franchise is a type of business that involves you buying the rights to use another company's brand, name, and logo. Under this setup, the parent company, meanwhile, provides you with training, support, and materials for your business. In return, you pay it royalty fees.

A franchise business has many benefits, including access to a large customer base, training programs, and brand name recognition.

If you haven’t started one yet, you’re missing out. Don’t worry.

You’ll learn how to start a franchise business with this article. Just follow these steps:

1. Do Your Research

Knowing how to start a franchise business means knowing how to choose the right franchise in the first place. You can only make the right choice if you go out of your way to know your market, competition, and the potential of the product or service.

When you do your research, you can make an educated decision about the following:

• The right location for your business
• How much money you need to invest in starting your franchise business
• What products or services are available in your area and whether they are needed by people there

Start by researching companies and their products or services. How much do you need to purchase a franchise? What percentage of the franchise location’s profits will you have to pay the franchisor in royalty fees?

Consider your market and how much experience you will need to succeed in the long run. For example, if you want to start a franchise business in the food industry, you must begin by looking at the kinds of foods the successful players offer.

It's essential to understand your industry's financial structure. You need to know how much money will be spent on advertising and promotion. You also need to know whether there are any costs that you might encounter in getting the products into stores.

You can create a spreadsheet with all that data for each of the companies offering franchises you’re considering. It’s best to organize them on a table so you can easily compare and contrast them later on.

Finally, determine financing options for starting a franchise business. For example, determine if a bank has a specific financing program for franchisees or requires a borrower to put up collateral for a loan. We’ll discuss this a bit more later.

2. Choose the Right Franchise

Based on what you find in your research, it’s time to choose the right franchise for you. Franchises come in all shapes and sizes. Here are some common types:

• Business Service Franchises: These include things like home repair, pest control, and lawn care.
• Food and Beverage Franchises: This includes restaurants, bakeries, coffee shops, etc.
• Other Retail Franchises: These include clothing stores and bookstores.

Consider whether the franchise will suit your personal goals, skills, interests, and ambitions over time. 

Choose a franchise that makes sense for your financial situation. How much money do you have saved up? Do you have enough room in your budget for an initial investment?

These questions will help guide your decision-making when choosing the right franchise for your new business venture.

Finally, begin approaching organizations to secure a contract. You can use tools such as TinyEmail to craft your pitch emails and get in touch with the organizations you’re interested in.

3. Create an LLC or a Corporation

Forming a limited liability company (LLC) or a corporation has many advantages, including the ability to protect yourself from potential liabilities in the event of legal disputes. Decide whether you want to form your business as an LLC or a corporation. It’s best to consult an incorporation lawyer to determine what’s best for your business.

But just so you know, an LLC allows you to keep your personal assets separate from the assets of your business. A corporation separates the assets of shareholders from those of the corporation itself. You may also form an S-corporation, which offers some tax advantages for small businesses.

For example, if you choose to incorporate your franchise as an LLC, it will be treated as a pass-through entity for tax purposes. This means that the business will not pay income taxes. Instead, all income, deductions, gains, and losses from the business will flow through to its owners, who will be taxed on their returns at their rates.

But, if you choose to incorporate your franchise as a corporation, it will be treated as a separate entity for tax purposes and pay taxes on its income. It can also make distributions to shareholders who are taxed on those distributions at individual rates.

The steps to creating an LLC or corporation depends on your state. You will need to fill out an application and submit other required documents, such as your articles of incorporation and bylaws. After filing these with your local clerk's office, you can begin operating as such.

4. Write a Business Plan

A franchise business plan is a detailed document that outlines your vision and goals for your new business. You’ll use it as a guide throughout your franchise business journey. You can also use it if you’re applying for a loan or securing other sources of funding for your business.

A good franchise business plan will help you define and track your goals and provide a roadmap for achieving them. It should include detailed instructions on how you plan to market your products, for instance. Will you be handing out flyers in the neighborhood? Will you be using social media?

It should also specify how many people you plan to hire, your sales goals for the quarter, and how you plan to achieve those, among others.

Here are tips for writing a good plan:

Organize it into sections.

Use easy-to-read sentences.

Use visuals wherever possible. So, for instance, include in your executive summary a table that helps you visualize your plan’s key points. Here’s an example:

Source

You can find business plan templates you can use online. The templates can help you save time since you don’t have to think about how to organize your business plan content. Just make sure the templates you choose are not riddled with grammatical errors or spelling mistakes. Remember, you’re more likely to show this plan to other people.

5. Apply for Financing

There are many ways to finance a business. In the case of franchise businesses, you can, of course, secure your franchise with money you set aside yourself. This is probably the best way to start your franchise business since you won’t have any debt to pay off once your store location is up and running. So, a bulk of your profits will go to you (the rest goes to the franchisor as royalty fees). The assumption here, however, is that you’ll still have enough money in the bank to sustain yourself even after you pay the entire franchise fee amount.

If the money in your bank accounts isn’t enough, you can secure bank loans and lines of credit. It is important to note that the bank does not lend money to unqualified applicants. You can apply for Small Business Administration Loans, for instance. These loans are given based on the business's viability, not just how well-funded it is. This means your chances of getting an SBA loan are still pretty good, even if you don't have much cash.

If you are not eligible for a bank loan, the good news is, there are other sources you may want to tap. For instance, you might have friends and family members who are willing to finance your business venture.

The federal government also offers tax credits for certain franchises that might interest you. These won’t help you completely finance your entire franchise but they can at least help you reduce the financial burden of starting a franchise business.

6. Select a Location

Location can play an essential role in how successful your franchise will be. You want to find a place where there are enough potential customers and where there are already other businesses that will help bring in new customers.

Many factors go into selecting the perfect location for your franchise, including:

• The area's population (including ethnic diversity)
• What kind of customers do you want to serve?
• How much competition there is from other franchises or businesses within the same industry
• How easy it would be for potential customers to get from point A to point B (and whether or not they have access to public transportation)
• Whether or not there are any zoning laws in place that restrict where you can run your business (this could prevent you from opening up shop in a particular part of town)

You can get some of this information from the research you performed in the early stages.

You will also want to look at whether or not the location meets your financial needs. This includes looking at sales tax rates, property taxes, and other expenses associated with operating in that area.

Consider how easy it would be to get supplies such as equipment or materials needed for the business at this location before deciding whether or not it's right for you.

7. Get Franchise Agreement

The franchise agreement is a legal document that sets out the terms and conditions under which your business can operate. It can help you protect yourself from legal disputes that could arise in the future.

You usually get this document after your application for a franchise has been approved by the franchisor. The agreement includes the following:

• The fees you must pay to the franchisor—including royalties and other payments
• The location of your franchise and any other restrictions on where your franchisee can operate
• Your responsibilities for quality control and any other obligations that may be imposed on you
• The name of the company that owns your franchise

A franchise agreement may also contain provisions covering advertising and marketing rights, intellectual property rights and more.

The process of obtaining a franchise agreement varies depending on what type of franchise you are interested in setting up. Sometimes, it may be as simple as downloading an online application form and submitting it for approval to the franchisor. If approved, you get a copy of the agreement online.

Or, it may be necessary to visit one of the franchise offices in person. They will help you fill out an application form and review it before approving your business venture.

Either way, keep a copy of your agreement so you can refer to it when circumstances require.

8. Hire Employees

If you don't have the right people in place, it can be hard to keep up with all the demands of running a successful franchise.

When looking for employees, here are some things to consider:

• Find people who share your vision for the company
• Look for people who are passionate about what they do and have a desire to succeed
• Don't hire people just because they have experience working at other companies or in similar industries; look for someone with enthusiasm and drive
• Be sure to interview everyone personally so that you can get a better sense of how they'll fit into your team

However, ensure the process is clear and respectful to encourage the best people to work with you.

After hiring the right fit, send them welcome emails so they’ll know what’s expected of them.

Consider offering training opportunities, too. You can send them to the seminars the franchisor usually holds for its franchisees’ employees or hold your own employee training for them.

In Closing

If you want to venture into business but you don’t have enough money and resources to come up with your own product, starting a franchise is a great option. For a specific amount and royalty fees, you can sell a franchisor’s own products or services, and use their own logos and marketing materials.

Venturing into this type of business isn’t as difficult as it sounds. You just need to know how to start a franchise business. You learned eight steps you need to follow for this:

• Do your research
• Choose the right franchise
• Create an LLC or corporation
• Write a business plan
• Apply for financing
• Get the franchise agreement
• Select a location
• Hire employees

Follow these steps and pretty soon, you’ll have your franchise business up and running. Good luck!