The How To Guide on Franchising for Beginners
April 28, 2017 8:45 AM
The great thing about franchising is that you don’t need to have a lot of experience to pursue your dream. Whether you have a particular franchise you would love to join or you just think it is a smart way to start your own business, buying into a franchise has a lot of perks that you wouldn’t get if you started your own business from scratch. Franchising is especially good for those new to owning a business because there is a support structure and training built into the program.
If you are considering becoming a franchisee, but don’t know where to start then check out this How to Guide on Franchising for Beginners:
Know the language
For the best success you should have a good understanding of not only what franchising, but also key franchise terms that you will hear as you start on your franchising journey. Here are some of the most common terms:
A franchise is an agreement between two legally independent parties which allows a person or group of people (franchisee) to market a product or service using the trademark or trade name of another business (franchisor).
Business format franchise
With this type of franchise not only does the franchisee use the product, service and trademark, but they must also use the complete business method of the franchisor.
Product distribution franchise
With this type of franchise, the franchisee only sells the franchisor’s products or services, but doesn’t have to follow a specific method of conducting business.
This is the regular fee the franchisee pays the franchisor for the right to sell their products or services. It is usually based on a percentage of the franchisee’s gross sales.
The brand name and logo of the franchisor.
The Franchise Disclosure Document is the disclosure document that details information about the franchisor and the franchise system.
Understanding your rights
Because franchising is governed by federal and state laws, you need to have a clear understanding of not only the legal requirements for owning a franchise, but also your rights as a franchisee. Franchise experts recommend that your hire an experienced franchise attorney to help you navigate all the legal paperwork. There are two legal documents that you will need to sign: the FDD, which lays out information about the franchisor and the franchise system, and the franchise agreement.
Identify the pros and cons of owning a franchise
If you are a fan of making pro and con lists, then this is the perfect time to make one. Franchising is not for everyone so you should be clear on what the pros and cons of taking this particular route to becoming a business owner.
Some of the pros are that you are given an already established product or service to sell allowing you to capitalize on the franchisor’s brand name recognition and that you are offered a support structure and training to help you get your franchise unit up and running. Typically the franchisor will help you with financing and constructing your store as well as with the grand opening and ongoing management support. As a beginner with little experience, being a franchise owner is like being a business owner with training wheels on. You have a support structure to help get a sure footing in the business.
One of the cons is that you do not have complete creative control. You have to adhere to all the regulations agreed upon in the franchisee agreement and you can’t just make whatever changes you want. Often times you will have to buy your supplies directly from the franchisor whether or not you think you can get a better deal somewhere else. Plus, there is the financial burden. Besides the initial franchise fee to get started, you will also have to pay royalties and advertising fees. If you find the franchise agreement too constricting you might want to start your own business instead. Also if you have a unique product or service that you’d like to explore then joining an existing franchise will not work for you. Being your own business owner will offer you the freedom you will need to see your vision realized.
Tips for picking the right franchise
Once you know you definitely want to get into the franchise business, you will need to decide which franchise program to join. There are so many out there offering both products and services so you really need to have a heart to heart with yourself about what would be the best fit for you. You also should interview a bunch of franchisors and their franchisees to find out more about their particular type of franchise.
Here are some important questions to investigate:
- Are there certain products, services, brands that I am passionate about? Are there certain values that are important for potential franchisor to have?
- Is there a viable market for this?
- How much are initial start-up costs? Is this doable for me?
- How long does it take to see a profit? Do I have enough money to keep everything afloat till then?
- Does the franchisor offer adequate training and ongoing support? What do they offer for advertising and marketing?
- Where will my franchise unit be located? Will I get rights to certain territory?
- Are there any bankruptcies or legal problems in the franchisor’s present or past?
- Are the franchisor’s trademarks federally registered?
- Does the franchisor compete with its franchisees in the same market?
- What are your financing options?
- If they offer training, where will it take place and for how long? Will it cost additional money?
- Who leads the training and what are their qualifications?
This is a big step you are considering taking, but it can be a smart move when you take it wisely. Being honest with yourself and thoroughly doing your research are the keys to making a good decision. Use this How to Guide on Franchising for Beginners to help you understand everything about the ins and outs of the franchise business so you can feel confident in your decision no matter what it is. Dream big. Work hard.