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How To Buy a Franchise: The Ultimate Guide
Owning a franchise is a wonderful way to start your journey as an entrepreneur. So many highly successful individuals have made their fortunes through franchising. Opening and operating a franchise, however, is a serious endeavor. It can be overwhelming, but we are here to help you navigate that process.
Here's a comprehensive guide on how to buy a franchise, including how to find and vet franchise opportunities, what you need to get started, financing options, and more. Good luck, future entrepreneur!
1) Finding & Researching Franchises
Whether you're a seasoned business owner or brand new to franchising, the first place we all start is research. To begin your franchise search, explore our directory by Industry, Investment Level , and Location. We’ve also put together a list of this year’s Top 50 Franchises, which can be a great place to start.
As you begin exploring opportunities, it is crucial to perform your due diligence. From analyzing industries to finding and training new workers, marketing, and continuing your own education, there are many moving parts to running a successful franchise business. Putting in the effort now to research and compare opportunities can leave you far better prepared for the future. Explore our guide on how to research a franchise for tips to help you get the most out of the opportunities that interest you.
2) The Pros & Cons of Owning a Franchise
Owning and operating a business is a huge milestone that many people work years to achieve. While there are many benefits to buying a franchise, there are also some potential drawbacks. It's good to have a realistic picture of both the upside and downside to franchising.
Benefits of Franchising
- Proven Track Record. With a franchise, you have the backing of a company with an established business model that is prepared for growth and fiscal prosperity.
- Support. Your franchisor can give you advice, insider tips, and support for the life of your business.
- Expansion Opportunities. With franchising, you can own as many or as few businesses as you like. There's no cap on the potential you have with the franchises you open. If you see that your first franchise is doing well, you can always opt to start the franchise process again in another location.
- Brand Recognition. Opening a franchise, especially a well-known one, will immediately bring business to your doorstep. When you couple that with a robust marketing strategy, you'll be in great shape for future growth and success.
Cons of Franchising
There are some potential pitfalls that anyone looking into buying a franchise needs to consider, including:
- Startup Cost. Franchises can cost a lot of money to open, especially for well-known brands. This amount is often more than what it would cost to start your own business. The good news is that there are many franchise opportunities available for any budget or investment level. There are also a number of financing options to help you buy a franchise.
- Franchise Fees. You will be contractually required to pay some percentage of the monthly gross earnings back to your parent company throughout the life of your franchise. This, of course, takes money out of your pocket. Learn more about franchise fees below!
- Limited Creative Control. Most franchising contracts have very explicit terms and standards that allow for little or no alterations or additions to the brand. This can be stifling if you are looking to open a business to flex your creative muscles.
Explore our guide to owning a franchise to better understand the ownership process, costs of franchising, and a list of questions to ensure that franchising is a great fit for you.
3) Understanding Franchise Fees
We often get questions about franchise fees. Fees can vary among franchise organizations, but there are some common types of fees that you should know. These include:
- Initial Franchise Fees. The payment of a flat, one-time initial franchise fee defines your business as a franchise of the parent organization and makes you a member of that franchise's business family.
- Royalty Fees. Franchisors typically calculate a royalty fee as a percentage of your gross revenue. Industry averages range between 4% and 9% of gross sales, but actual fees will vary among different franchises.
- Advertising & Marketing Fees. Like royalty fees, advertising fees are paid on a regular basis and may be set as a constant amount or an amount that corresponds to your gross sales. These fees are typically a lower percentage than royalty fees.
Explore our guide on franchise fees for more detailed information, including average fees, how fees affect your profits, negotiation options, and what happens if you default on a fee payment.
4) Planning Your Budget
Understanding your budget is crucial when buying a franchise. Knowing your net worth is a great first step to understanding exactly what you can afford. Simply put, your net worth is the sum total of all of your assets, minus any liabilities. Your assets could include cash, income, property, stocks, and more—while liabilities could include things like a mortgage, credit card debt, etc.
Use our Net Worth Calculator to quickly determine your total net worth and plan your franchise budget.
5) How to Finance a Franchise Business
Now that you know your net worth and what you can comfortably afford, it’s time to think about how you plan to finance your franchise business. The good news is that you have a number of options available to you. From a cash investment to small business loans, retirement account transfers, and more, there are several ways to finance a franchise purchase. Explore our Financing Center for more information.
The financial side can be stressful and complex, and there’s more you should know beyond your various financing options. We’ve put together some tips to help you navigate this part of the process and give you tools to ensure you know your rights as a franchise owner.
6) What to Ask Potential Franchise Brands
You know you want to buy a franchise. You understand all the pros and all the cons of franchise ownership. You know your net worth and how to navigate the financial side of franchising. You’ve narrowed down your search and are ready to begin seriously vetting and comparing potential franchise opportunities. So, what should you ask franchisors?
- What are my marketing requirements as a franchisee?
- What is my expected income as a business owner?
- What did you see in me as a potential owner?
- What skills will suit me best as an owner of this franchise?
- What traits do your most successful franchisees hold?
- What are the biggest reasons your franchisees fail?
- What’s my market base?
- What are the best tips for staffing this franchise?
- And More
Explore our guide on the most important questions to ask a franchisor before buying a franchise for deeper insight that will help you find the perfect fit for your needs, budget, and skillset.
7) Expansion & Maximizing Revenue
You are on your way to buying a franchise. You’ve decided which one you want, financed the new business, and built out the infrastructure. Now you’re ready to grow. Explore our guide on franchise expansion to help you maximize revenue quickly with proven steps that you can put into action today.
How to Expand a Franchise Business
8) Build Your Franchise Team
You can’t do this alone. To be a successful franchise owner, you’ll need a team that you can rely on. It’s important to pick the right people for the right jobs and ensure that they’re committed to success. It is equally as important to ensure your staff knows that they are essential to a profitable business. Read our guide on how to build a franchise team to help you establish the best team possible.
9) Why You Will be a Great Franchise Owner
You’ve made it this far. You’ve taken all the steps to be confident in opening your own franchise business. That’s huge! But, even with all the work that you’ve done, sometimes a little self-doubt creeps in. That’s ok. You’ve got this. Explore all the reasons you are going to be a great business owner.
Buy a Franchise Today
We hope this guide on how to buy a franchise has helped you understand what you need to find the best franchise opportunities for you. If you’re ready to start your search, FranchiseOpportunities.com is the best place to begin. Browse our directory to find the best franchise opportunities available today!
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