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Quick and Easy Guide to Buying a Franchise in 7 Steps

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Entrepreneurs are drawn to franchising because it is one of the safest ways to open a business. Buying a franchise model is buying a concept that is already developed. The tools and resources to guide your success are keenly sharpened. Think of franchising as following a roadmap. Without a map to outline your business trek, you will be stranded. Instead of getting a tow, you’ll be declaring bankruptcy. But with a roadmap, your are provided with a track record of success, a strong brand, and support system where you can leverage your skills to operate a business you can be proud of. Not to mention make some well-deserved money in the process.

According to Investopedia, the definition of a franchise is: “a type of license that a party (franchisee) acquires to allow them to have access to a business’s (the franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name.”

Of course, with any investment, there is risk and challenges ahead. The best way to prepare for the inevitable is to be prepared. This 7 step guide will help anyone interested in buying a franchise the roadmap to do it right!

1) Ask Questions First, Buy a Franchise Later

The key to partnering with the franchise of your dreams is due diligence. The first step is research. First, figure out what kind of business you want to own. Since you have decided to buy a franchise you can forego traditional start-up routines. Successful franchises have already explored market gaps, capitalized on niche consumer trends, developed unique revenue streams, and refined back office systems that will save time.

So, before buying a franchise, you need to pick an industry. Do you see yourself owning a business services unit like The UPS Store? Running a pet grooming franchise? Or do you want to be a fast food titan?

Take a reflective look into what truly makes you happy and where your passion lies. This will keep you motivated when unforeseen events occur. Next, you will need to identify your budget. Pour over your personal finances to delineate your equity. Your capital, liquid assets, and net worth will all help you paint a picture of how much you have to spend. You may consider taking out an SBA loan or contacting a CPA to help with the process. This self-appraisal will be part of the template used to shop before buying a franchise.

Once you have determined the style of franchise, and verified your finances, you can begin researching various companies in your prospective segment. As your extensive research goes underway, you will be hearing a lot of sales pitches. Franchises across the board put huge efforts into selling their models. This is why it’s important to find the perfect fit for you! Select options that align with your values and vision—find a business you want to own. Also, take into consideration your personal strengths and weaknesses. Does this franchise provide support in areas you will need help with? Will this franchise support the areas you have experience in?

Researching and buying a franchise is a life-long decision and should be treated as such!

2) Make a Business Plan

Take into consideration all the research you have compiled. Review all the information you have gathered from prospective franchisors and compare this with your own research into the marketplace conditions of the industry you are interested in. From these statements, create a business plan. This should include all your investment costs and projections for your return on investment (ROI). Differing franchise fees, royalty fees, and potential price of inventory all need to considered. A huge mistake many novice franchise owners make is underestimating their startup costs. You don’t want to run out of money before you can get the doors open!

The quality of your business plan can affect the likelihood of getting an SBA loan, knowing how to analyze a franchise agreement, and will detail your legitimacy of buying a franchise.

3) Tour Franchises and Attend Discovery Days

Once you have tapered through definite non-fits and have discerned a few franchise models you are really excited about, it is time to start reaching out to franchisors. This is the first step in an ongoing conversation you will have with their team.

Some franchise models have ‘discovery days.’ This is a tour of facilities that will show you what you can expect as a unit owner. Always request to speak to current franchisees. One of the most important questions to ask them is, “Would you do it all-over-again if you could?” If franchisors are reluctant to get you into contact with franchisees—this is a red flag!

Good franchisors should be supportive and knowledgeable. Their goal should not be to sell you their franchise, but to provide you with the knowledge to make an informed decision. During your initial conversations—in person or conference calls—you will typically undergo an interview process. The goal of this interview is for all parties involved to examine the details of you buying a franchise.

4) Review the Franchise Disclosure Document & Sign the Franchise Agreement

Once you have made the final decision to proceed with the franchise that is the best match, you will need to review the franchise disclosure document (FDD). The FDD is a non-negotiable legal document that exhibits all pertinent information you will need to know.

An FDD includes:

  • Franchisor/CEOs/Parent Companies/Affiliates
  • Business Experience
  • Litigation
  • Bankruptcy
  • Initial Fees/Other fees
  • Territory
  • Restrictions/Trademarks
  • Obligations of Parties
  • Financial Performance Representations

After receiving the FDD, carefully scrutinize every detail. If it will make you feel more comfortable, you can hire a franchise attorney, or an accountant to help you decipher the details. This is not always necessary, but if you feel it is needed—please feel encouraged to do this. Once you are 100% confident and have met all the requirements for franchise ownership you can sign the contract with the franchisor.

5) Training and Support

A well-equipped and reputable franchise model should have an internal orientation and training program. This is usually a requirement of all new franchise owners, despite personal experience. Some franchisors also require on-site training. This is a good thing! This will be first-hand applicable experience. This training will also provide face time with a veteran franchisee. One of the biggest mistakes you can make is ignoring the advice of experienced franchisees.

You should also be wary of travel expenses during a company’s training program. Many times you will need to visit corporate headquarters, book a hotel, or purchase materials for training. These will be paid at your expense so be aware of the costs before starting a training program.

6) Location, Preparation, & Construction

One of the biggest variables in your franchise’s success is having a strategic location. For brick-and-mortar locations, the storefront should have high visibility, be easily accessible, and centrally located  to your prospect consumer. During your research of an intended market, you should develop a feel for the demographics of the area. Franchisors often assist with securing locations.

You will also need to consider the competition. Most territory agreements will ensure that a franchise will not cannibalize the company, but competing businesses in your sector can threaten your business. Find the most advantageous location and begin construction.

A build-out design is dependent on the type of franchise you choose to go with. A restaurant franchise will need a different build-out than a personal services franchise. If you are planning to have retail area, make sure that your contractor can build the space you need. Franchise companies may support you by supplying blueprints, securing locations, and providing brand aesthetic.

7) Ready Your Franchise for Opening Day

After buying a franchise, there is still an immense amount of work that needs to be done before you can have a grand opening. Most small businesses begin with a soft opening to fine tune the system. Franchises provide many things like support with hiring and training staff, providing a POS system, and facilitating an initial stock order.

Revolving around what type of franchise you have decided to open will dictate the tasks that need to be done. Many franchise owners focus on marketing to potential consumers. Much of this is done digitally. Be sure not to market beyond your staff’s ability to service customers, especially during the first few months of being open.

Now, the Grand Opening! Once all the kinks are worked out you can begin perfecting your franchise and if you work hard, you can see a swift ROI and even continue on to expand your franchise empire!

Good luck!

 

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Three Growing Areas to Start Successful Franchises

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With all the hype thrown around,  it’s hard to tell what’s legitimate and what’s greasy. When you research different franchises, there’s a lot of pageantry involved with Discovery Days and the boasting of irrelevant figures. Buying a franchise should look more like a partnership, even with the big guys. It is illegal to disclose how much any individual franchise location will make, and past profits will be included in the FDD. This puts future franchise owners in a precarious spot. This is why transparency and research are the road lines in the street of due diligence. So what are the successful franchises and what are the sinking ships?

Looking at the industry as a whole helps future owners get a comprehensive peak at their possible ROI. The three industries that dominate the franchise market are also the fastest growing: Quick-Service Restaurants, Pet Services, and Maintenance.

Let’s examine each to see the pros and cons of investment.

Quick-Service Restaurants

Since 1955, when the golden arches first opened their doors to franchising and burger gourmands alike, the fast food titans have reigned the market. This has forced newcomers to innovate. The new models are designed with a more upscale ambiance. A popular model is the quick customizable menu choices that were first popularized by Chipotle. One step further, are the all-natural healthier alternative chains who are gaining huge traction, like Panera Bread.

Although in the past two years, McDonald’s did close around 750 locations. In the same time period—the chain opened 1,000 additions to their international location count. These openings offset the failing locations. The net 300 additions are keeping the franchise afloat. If anything, this is indicative of a shifting market and how franchisee ambition can make or break the success of a restaurant.

One thing is for sure, whether you plan on opening a Subway or a Taco Bell you’re well within an industry that will not budge.

The Pet Franchise Industry

Many have found a way to translate their love for animals into owning successful franchises in the currently exploding pet industry. Pet ownership is on the rise with 84.6 million homes in the U.S. reporting to own pets. In response to the demand for pet food, care, medical services, and dog leashes franchising in all-things-pets has become a lucrative and joyful experience for franchise owners.

The industry has been steadily rising since the early 90’s.  Spending really took off during the recession and 2015 when spending increased by almost 11%, or $6.47 billion.

This new demand opened the floodgates for workers ditching corporate America and finding better opportunities owning anything from a pet grooming franchise to a dog training center. Mobile grooming is also taking off. Many pet owners prefer the convenience of getting their dog’s grooming done from their house. The dual pet grooming shops that also sell retail items have seen enormous growth too. These franchises model the mom-and-pop pet store but have profitable business concepts like recurring revenue to continually push the business forward. The advantages of these concepts are proliferating into successful franchises.

As pets become more of a staple of American life, and the norm becomes thinking of them as children who should be spoiled as such, it is evident this industry will continue to swell.

Maintenance Franchises

Low start-up costs, the inevitability of everything getting dirty, and eventually breaking is the recipe for dozens of successful franchises in the maintenance industry.

Maid services, lawn care, electrical, and appliance repair are just a few niches within the second largest segment in the franchise domain. Maintenance franchises make up 12.6% of the market. This growth welcomes handymen everywhere to put their practical skills to money-making uses with proven business models.

The best franchises to research are ones with environmentally friendly messages and solutions. As more awareness of carbon footprints and sustainability increases, many customers will opt for eco-friendly products and services. Consumers are typically willing to pay higher costs for cleaner solutions.

Franchises like NaturaLawn of America, Mosquito Squad, and You’ve got Maids are all great places to start the search. However, be wary of franchises that have come into some controversial heat in the last few years. A few companies have been sued for fraud and other unethical business practices and publicity of this nature is not the brand you want to represent. All litigation will be disclosed in an FDD.

The Secret to Successful Franchises Everyone Knows About

Yes—research, instincts, and finding the perfect match are all crucial when shopping around for small businesses. But the real reason franchise owners earn their ROI a year after opening—then go on to expand and earn considerable wealth—is they were able to take a critical look at themselves.

Owning a small business takes dedication. You are in a constant flux of creativity. When market trends shift out of your favor, how do develop a marketing campaign to bring customers back? When construction begins on the street in front of your shop, how do you endure the shortage of foot traffic?

The answer is passion.

Find out what you are passionate about. Then you will not only be able to reach successful heights, but the everyday challenges of owning a business will play an integral factor in your happiness.

Good luck!

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