Four Steps To Becoming A Franchise

Franchises are one of the most prevalent industries in the American economy, and it’s easy to see why.  Becoming a franchisee offers an individual the opportunity to run his own business while building off the success of the business, as if it has already been running for years (which of course, it has).

A franchisee gets to start the franchised business but does not have to address many of the typical aspects of a startup, such as incorporation or trademarking, thus avoiding many of the problems and costs of starting a business. If you are interested in starting your own business, but looking for a way in without necessarily starting from scratch, franchising may be for you!

Choosing the Right Franchise. The first step in becoming a franchisee is to choose with franchise you’d like to pursue. A franchise should fit with the franchisee’s schedule. If the franchisee is uninterested in working nights and weekends, franchises that are open non-traditional hours probably aren’t a good choice. The franchisee’s available budget to start the business is also a major consideration.Some franchises are distinctly more expensive to start than others, such as opening up a hotel versus a service store.  Becoming a business owner is an investment of time and money; the franchisee will want and need to enjoy going to work, in order to make the franchise a success.

Impressing the Franchisor. Most franchisors receive numerous calls from prospective franchisees but can only offer so many opportunities to join.  As a result, becoming a franchisee in a highly desired franchise is a competitive process.  Franchisors are looking for people who share the dream and will support the company, but are also motivated and successful.  The best thing a franchisee can do to improve his chances of being selected is to thoroughly research the company and arrive promptly and prepared for all meetings.  This conveys the impression that the franchisee is dependable and sincerely interested in the franchise, two key qualities cited by franchise hiring departments.   

Negotiating with the Franchisor. Another obstacle in becoming a franchisee is drafting the contract and interacting with the franchisor. Before committing, it is wise for a franchisee to consult an attorney regarding the contract. While a franchisee may not have much leeway in terms of changing the contract, it is very important that the franchisee know what to expect from the relationship. A franchisee may also want to have a lawyer look over the Franchisor Disclosure Document, which serves as the discloser for the franchise, similar to a disclosure circular from a company to a potential investor. The Franchisor Disclosure Document lays out much of the necessary information for the franchisee, including the history of the franchise, financing specifics, trademark usage regulations, and provisions for future conflict (both legal and financial).  Since the franchisor continues to control many of the business decisions of the franchisee, the franchisee should enter into the relationship with the franchisor with as much information as possible to avoid problems.

Financing the Franchise.  Just like any other business, a franchisee must finance the startup costs of running a new franchise.  Some franchisees may be in the quite enviable position of being able to finance their own dreams, however most will need an outside source of funding.  A franchisee is typically not in the position to take on investors for financing but there are many other sources of funding in today’s world.  Friends and family may be a good place to start.  These “loans” will, in many cases, have better interest rates and payment schedules.  Friends and family are always looking to see those close to them to succeed and as a result, are more willing to be involved informally.  Personal loans and credit cards are a second way to make money to start the franchise.  If a franchisee has good credit, this may be a good choice, however it puts the franchisee’s personal assets at risk in the event the franchise fails.  A franchisee can also get small business loans or grants.  In the current economy, these have been hard to come by but it is getting better.  There are many options for a franchisee seeking funding, some are more obvious than others, but a little research can unearth a variety of choices. 

Engaging in a franchise relationship is one of the best ways for someone to become a business owner.  In many respects, the franchisee gets to do the fun part of being a business owner without addressing many of the problems of starting a business.  If you’re looking to start your own business but not quite sure where to start, franchising may be for you!