If you have been wondering how to become a franchise owner, you are at the right place. We will outline steps that every aspiring franchise owner must do before opening day.
Key Takeaways
- To become a franchise owner, investors don’t need to own millions of dollars of startup capital.
- There are more than 4,000 franchisors on the market, and some of them offer very affordable franchising opportunities.
- Researching franchising options will take time and effort, but it is the most important step.
- The franchisor must deliver to every franchisee applicant Franchise Disclosure Document.
How to Become a Franchise Owner
Determine Start-Up Capital
To become a franchise owner, the investors must have at their disposal more startup capital than entrepreneurs who are starting an independent business. However, that doesn’t mean you will need millions of dollars to buy a franchised business.
Usually, when we mention franchises, people first think of McDonald’s, Burger King, KFC, etc., and how much it is costly to open. But, potential franchise owners must be aware that today there are more than 4,000 franchising companies, and most of them can be considered low-cost ones.
So if you are a rookie entrepreneur with a shortage of startup capital, don’t despair. Investors can start a wide range of low-cost franchises for under $100k; if you have a good credit score, it will be easy to get a loan to start a franchise business.
Also, some franchisors offer in-house financing, which means the franchising company will help their franchisees with funding for starting new franchise locations.
Find franchise opportunities according to your financial possibilities.
Yes, it would be pretty cool to own Mcdonald’s, but the reality is that many aspiring franchise owners can’t afford to start it. There is nothing wrong with starting a low-cost franchise; in some cases, they can be more profitable than ones that websites often put on the list of the best franchising opportunities.
When we talk about how to become a franchise owner, we must mention that franchising is not only in the restaurant industry. For example, on the market is available a wide range of cleaning franchises that demand low startup capital, and they make a good profit for their owners.
The investors can research the franchising opportunities by themselves, or they can opt to hire a franchise consultant.
The cheapest option is to research franchise opportunities by yourself. At present, there are a lot of websites that are dealing with evaluating brand franchising offers. Our website EffectsBusiness is one of the leaders in this branch, so you can start with our reviews of franchising opportunities.
Investors who don’t have free time to conduct research opportunities by themselves can opt for hiring a franchise consultant. There are a lot of franchising consultants, so it would not be hard to find one in your neighborhood.
Choose the right franchisor for you.
Every investor who wants to become a franchise owner must know that every franchising opportunity has advantages and disadvantages, so finding an ideal franchisor will take time and effort.
First, the investor must choose a business niche; not all niches have the same profitability. After that, it is crucial to determine what we want from the franchisor and its franchise package.
Before they opt to sign a franchise agreement, investors must determine what type of business assistance and attention they need and search from the franchisor?
Usually, franchises are the first option for investors who don’t have past managerial business experience, and their main goal is to become their own bosses. So if you are in this group of people, doing your due diligence before signing a franchise agreement will be the most important task.
Find out all about franchisors that interest you by asking their former and current franchisees how they conduct business operations. The current franchise owners were once in the same position as you, and most of them will gladly give the answers to all your questions that you have.
Apply to become a franchise owner
It is very easy to apply to become a franchise owner; you can go to the franchisor’s official website and make an online application to open their franchise unit. After some time, the brand representative will contact you and guide you thru the rest of the process.
Usually, the franchisor demand that applicants present all their financial information. So, you will need to meet the franchisor’s financial requirements if you want to become the owner of the franchise.
The brand’s owner will want to know how much in liquid assets (savings) you own and what is your Net Worth. Every franchisee applicant goes through a similar process that we can compare to one that we can see when someone makes a job application.
The investors have researched the franchisor well before application, and now the franchisor will want to know more about the potential buyer of their franchised business.
If a potential franchisee has fulfilled all the franchisor requirements, the franchising company will deliver a Franchise Disclosure Document to the applicant’s address. This document summarizes all the information that every potential franchisee must be aware of before closing the franchise agreement with the provider of the franchising opportunity.
All franchisee applicants must learn how to read Franchise Disclosure Document because after the franchise agreement is signed, the franchisee and franchisor will be business partners for many years upfront. On average, these agreements have a duration of 10 years.
Prepare all for the opening day of your franchised business.
After the investor sign the franchise agreement, it starts real work. Usually, the opening day will be 6+ months after closing the deal with the franchisor, which means it will take a lot of time to prepare the business for the opening day.
We assume that you already have a franchise location, and now it will be necessary to make leasehold improvements according to the franchisor’s requirements. The franchising company will provide you with all architectural sketches and a list of the approved supplies for the equipment, inventories, and other supplies.
Some of the franchisors offer on-site assistance and help investors with preparing real estate for the opening day. If your franchisor provides this option, the brand representative will handle all operations and organize all improvements needed inside and outside the building/location.
One of the advantages is that investors who want to become franchise owners must undergo extensive initial training. So if you apply to start a franchised business and choose the right franchisor, you can expect to be well prepared for managing your business in the right way.
The cheapest option to become a franchise owner
The cheapest option to start a franchise is to buy an already existing location from the franchisee who is willing to sell his business. In this way, you get a turnkey business that is ready to make a profit immediately after the transfer agreement is closed.
The peculiarity of the franchising industry is that when an owner is selling his franchised unit, three parties must give the green light to make a deal. The franchisor, the former, and the future franchisee must come to a mutual agreement.
Transferring ownership of the franchised business seem complicated, but, in reality, it is a very straightforward process.
After former and future franchisee negotiates selling terms, they will send documents of the transfer to the franchisor. If the buyer meets all the franchising company’s requirements, they will approve the transfer.
Usually, franchisees sell their business because they want to retire. However, an investor must research how much that particular franchise has delivered profit to its owner per year.
Buying already established locations provide more financial information to the investor than starting a franchise from the ground up. The former owner will provide information about past gross sales and profit margins, so the new owner will know immediately how much profit his business will make in the future.
Summary
We have summarized a few steps that will be helpful to all investors who want to know how to become franchise owner. At present, the franchising industry is booming, and most analysts think that more and more businesses in the future will be franchised ones.
Although costs associated with operating franchises are higher than ones in the independent business that doesn’t mean that this type of business can’t be a lucrative investment.