You’ve dreamed of opening your own business, but starting from scratch might not be for you. Instead, running a franchise can be a great opportunity for any entrepreneur to gain experience with a company while building a portfolio. Instead of starting from scratch, your role will be to expand an existing business. As a franchisee, you can work with existing customer trust and loyalty to build on a growing market. But just because you’re not starting from scratch doesn’t mean opening and running a franchise is an easy process nor a guaranteed success.
Franchise businesses have become one of the most profitable business models in the past decade. Entrepreneurs who want to open a franchise need to know that’s not as easy as it sounds. There are a lot of research and legwork to do.
Instead, entrepreneurs who want to open a franchise must understand the dynamics of such an investment. Franchises can be complicated to work with, and they aren’t right for every entrepreneur. That said, opening one can help you build invaluable business experience with the potential of accruing wealth.
But before you go jumping at a franchise opportunity, you’ll need to explore what such an investment means for you and understand the concepts of this business concept. Following these seven tips will help you build the understanding and awareness that successfully opening a franchise requires. Read on for the details.
Franchise Basics
A franchise is a business in which independent entrepreneurs use the rights to a larger company’s business name, logo and products to operate a single location. Let’s examine how you can evaluate franchising opportunities. The corporation owner is a larger company selling the rights to license his business.
The franchise company operates at the business locations owned and operated by third parties. You may have been doing business with franchises before even if you knew about them.
The franchiser pays an initial fee (Often called a “franchise fee”) and continued fees to the franchisor. In exchange the licensee gets the use of its trademark as well as continuing help. Franchisees enjoy a competitive advantage in using material supplies and services.
The franchisees conduct market research before buying a new store so you can feel more confident about whether there is a demand for the product or service. Failing to do adequate market research is one of their largest errors in the business life. As a franchiser it is done for you.
Understanding Your Investment
First, you’ll want to be sure you understand what opening a franchise means in terms of risk and revenue potential. Every franchise, of course, will have its own numbers dictated in the Franchise Disclosure Document (FDD). This is one artifact of every franchise you should always thoroughly review and understand.
The FDD is a mandate of the Federal Trade Commission (FTC). It contains information providing everything from a company’s history to data on existing franchises. According to the FTC, companies are required to provide an FDD to a prospective franchisee at least 14 days before the signing of any binding documents.
Obtaining an FDD will be one of your first steps towards understanding what it really will mean to open and operate a franchise. From here, you can examine crucial details, including:
● Franchisor and affiliate history
● Litigation filed concerning the franchisor
● Bankruptcies filed by the franchisor
● Franchise outlet performance
● Financial information and estimated initial investments
With this information, it’s time to explore the ins and outs of opening a franchise with the help of these tips.
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Top 8 Tips for Entrepreneurs Who Want to Open a Franchise
1. Know the role
Being a successful franchisee requires that you know what the role entails. From the administrative operations to the real estate aspect of the process, you must be versatile and flexible, ready to adapt to the needs of the job. That’s because as a franchisee you’ll wear many hats.
In most instances, a franchisee operates with a high level of independent responsibility. These are some of the main obligations of the job:
● Leasing a location
● Hiring and training employees
● Implementing the standards of the franchisor
● Payment of franchise and royalty fees
At just a sampling of the work involved with opening and running a franchise, these items require a broad skill set. Franchisees have to be ready to explore building locations, work with agents, and secure a responsible lease agreement. Then, they have to be prepared to hire and train employees that truly understand the business. This means knowing to look for items like strong and concise resume summaries on job applications.
Then, if you don’t have experience in the actual customer-facing side of the franchise, you’ll need to learn that process. A franchisee has to be a jack-of-all-trades when it comes to the business, able to step in and manage if needed.
2. Do thorough research
To achieve a state of preparedness when opening a franchise, you’ll have to do thorough research first. This starts with knowing what your role will entail when operating a franchise. From there, it’s time to thoroughly investigate the franchisor, the local market, and strategies that other franchisees have applied for greater success.
You’ll need to assemble your resources to make research easier. Start with the FDD, which will provide almost everything you need to know about the business itself. Then, you can begin the process of unraveling the local market to better understand customer behaviors in your intended location.
Through doing a thorough research online it’s possible to learn so much about franchise business. Find out reviews of franchise companies and about the type of business you are considering opening. Ask friends, family and friends for their views concerning the companies that they recommended.
As a franchisee, you’ll have to guarantee revenue if you hope to make a return on your investment. While you’ll be limited in terms of what you can do to better the brand, you can always innovate in terms of what the brand stands for.
The flexibility you have in terms of staffing, management styles, promotional material, and more can all play into a more effective franchise — if you do your research effectively.
You must contact the franchising authorities locally in order to verify the requirements. You should note that all background information will have extreme sensitive consequences if you don’t consult a licensed attorney before making a decision.
Research is a primary step when it comes to making any investment. When it comes to franchises, however, you can find options that already play to your strengths.
3. Play to your strengths
Opening a franchise is a big deal. No matter how hands-off you might want to be with your store eventually, it will take a lot of work on your part to get things up and running. It will help a lot if you choose a franchisor and an approach that already plays into your strengths, passions, and experiences.
For instance, maybe you have a background in food service or you used to work at a certain pizza franchise in the past. These experiences provide insight into the business from a perspective many other franchisees won’t have.
Meanwhile, if you’ve been passionate about something like pizza all your life, it wouldn’t make much sense to then open a franchise that sells software solutions to businesses. It will require true passion to drive a franchise store to success, so align your investments with what already matters to you. That way, you’ll find you’ll get more out of the franchisee experience.
For this experience to be positive, however, make sure you approach it with realistic expectations.
4. Dispel the myths
Operating a franchise sometimes gets hyped up with inaccurate information. These are myths perpetuated by overzealous franchise consultants and franchisors that either intentionally or unintentionally mislead entrepreneurs. To successfully navigate the opening of your own franchise and avoid any surprises when all the bills come due, you’ll need to first dispel some common myths.
Chief among these myths is the persistent fable that franchises are more likely to survive than fully privately-owned operations. This is not true. In actuality, the Small Business Administration has found that franchises fail at approximately the same rate as every other business, which is to say that only around half last 5 years or more.
Dispel any myths surrounding the franchisor of your choice by reading up on their FDD, then by speaking with other franchisees, both within the same organization and without it. Networking with your peers like this is another key element in opening a successful franchise.
5. Network with franchisees
Everyone needs help and guidance from time to time. One of your best resources in the course of opening a franchise will be your social network of other franchisees. These experts bring experience to the table and can answer questions they’ve already had to deal with in their work.
Fortunately, the modern era means plenty of options for getting in touch with other franchise owners. Social media is of course one of these options. With platforms like LinkedIn, Twitter/X, Reddit, and YouTube, franchisees can engage in helpful discussion in all kinds of judgment-free digital environments. These interactions might even create mentorship opportunities, in which you can connect with a more experienced franchisee who can answer many of your questions.
Additionally, franchisors themselves will undoubtedly have resources when it comes to other franchisees. They’ll be able to provide you with networking opportunities and put you in touch with others who have every interest in helping you succeed.
Social capital will help immensely when opening your franchise. However, little will help more than getting real, ground-floor experience.
6. Gain experience in-store
Many franchisees underestimate the power of learning your business inside and out. The more knowledge you have of all business processes, the better you will be able to pivot your franchise towards success should it start to slip. This is because understanding every function of an operation helps you see the bigger picture, cut unnecessary costs, and streamline for efficiency.
You cannot develop a successful internal strategy guide without explicit knowledge of how your business operates. This will require getting in the store with your employees, engaging them in feedback regarding challenges and suggestions, and examining the day-to-day. In fact, having experience in-store is a requirement many franchisors hold their franchisees to. The coffee chain Dutch Bros., for instance, will only grant a franchise to someone who has worked for the company for at least three years.
In gaining franchise experience, you’ll want to diversify your knowledge across all roles. Every business owner needs to understand accounting terms and principles, for example, such as accounts payable or variable costs. The more experience you have in all departments of a franchise operation, the better prepared you’ll be to manage a franchise efficiently.
More experience in-store will also help when it comes time to assess risk and innovate.
7. Get advice
A business owner or an entrepreneur who would like to open a franchise should be wary of taking on individuals who will just sell themselves for profits. Remember that the individual may have ulterior motives.
So before you enter any agreement you should make sure there is no other entity involved who can compete with your own enterprise. This person might have useful information about the intricacies of the franchising business. It may also be helpful for an entrepreneurs to seek out independent assistance from those who recently opened their businesses such as those experienced with franchising.
8. Assess the risks and the opportunities
Finally, you’ll want to create documents detailing and exploring your risk and reward potential. This means detailing a realistic financial plan based on all the franchise and industry data available to you, alongside your budget plan for staffing and maintaining the franchise.
Before a franchise opens, it must include its business plan and funding needs while it is considered. No franchise has a unique set of rules.
Items to consider in your cost/benefit analysis include:
● Overhead
● Liabilities
● Franchise fees
● Royalties
Outline all these items in a document or on a sheet of paper where you can then detail a larger outlook of your investment long-term. Franchises can be easier and faster to get started, but the financial assessment might have you wondering whether or not you might be better off opening an independent business. After all, an independent business has a chance of becoming a unicorn.
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How Do I Open a Franchise?
Many entrepreneurs and business owners with plans to expand do not have enough cash on hand to set up the business. Even if you have sufficient funds there are many other factors you must keep in mind such as franchise registration, franchise details and more.
Franchising is a marketing strategy for business expansion where the one party grants or licenses other party some rights and authority for them after signing a franchise agreement in exchange of a franchise fee and an initial investment as well as a commission based on revenue (Ongoing royalty fees).
The starting cost and initial investment of a franchise is often higher than the cost of starting a new business. You will have to pay ongoing royalty fees during the lifetime of the franchise agreement and you need to comply with the system created by the franchisor. In exchange, you will have an ongoing support from the franchisor.
Improving the Odds for Entrepreneurs Who Want to Open a Franchise
A franchise, when done well, is a business model that can do wonders. This is a proven system for expansion. Whether you are a franchisee or a franchisor, you’re considered as a business owner and that involves a lot of responsibilities.
There are several excellent franchise directories that will show you the lowdown on hundreds of successful franchises as well as the background and reputation of the franchiser. Franchisees should consider their reputation if they want to purchase them because it depends on their background and franchise owner’s past history.
Franchises aren’t necessarily better at surviving than any other business type. They do, however, represent a simpler path towards business ownership for the interested entrepreneur. To open a successful franchise, though, entrepreneurs will need to understand their role through thorough research and exploration of the market. Extensive market research is key for entrepreneurs who want to open a franchise.
These eight tips can all help you improve the odds of success when opening a franchise. But first, you’ll want to be sure such an investment is right for you. Speak with financial professionals and thoroughly read your FDDs (Franchise Disclosure Document). The perfect franchise or business opportunity might be out there waiting, but it’s up to you to find a new or an existing franchise that fits your needs.
Growth Hackers is a one-stop shop franchise marketing agency helping startups, entrepreneurs, and franchise business owners with branding, digital marketing for franchises, and growth hacking. We can help you build your overall growth strategy, whether for an existing business or a new startup venture. Contact Growth Hackers today if you want to use growth hacking techniques that will set your business for success.
