Opening a Franchise Business
Opening a business takes a great deal of time and money. Many people dream of being their own boss and owning their own business. It can be overwhelming to start from scratch and establish brand awareness and business operations. This is why many business owners open a franchise.
A franchise is a branch of an existing business rather than starting a business from scratch. This article provides an overview of franchise law, franchising basics, and finding the best franchise opportunity. For the best advice and answers to specific questions about franchising, contact a business franchise lawyer.
Financing a Franchise
The initial investment to start a franchise varies widely. Factors that determine the startup cost include the franchise location, size, profitability, and name recognition. You will pay more for a well-known fast-food restaurant with a great brand name. Brand recognition, like McDonald’s, may present a lower risk with a higher royalty fee. A newer, lesser-known franchise has a lower initial franchise fee.
Franchises often require payment of an upfront franchise fee simply for the opportunity to get the business going. However, if it’s a good franchise, it may become profitable sooner than a brand-new business. Franchise operations also provide everything you need instead of figuring it out on your own.
Operating the Franchise
Some franchisors require their franchisees to actively manage the franchise and not be passive investors. Before taking a franchise opportunity, make sure you understand the type of business and your responsibilities.
Franchisors will want to see a business plan and marketing plan. Talk to current franchise owners about their experience as prospective franchisees and small business owners. You can also talk to a franchise consultant for more information.
Your Franchise Goals
Why do you want to buy a franchise business? Do you want to be your own boss, to open a business in a specific field, is it for a short-term or long-term investment, and are you doing it solely to make money? Some entrepreneurs want to start a small business. They want to create their own signage and build their own customer base. Will the franchise agreement let you do that? There are types of franchises that will.
Research Available Franchises
Franchise opportunities are available in almost every business, from gyms to fast-food restaurants. If you are uncertain about your franchise options, look for a franchise convention. A franchise convention offers the opportunity to meet company representatives face-to-face.
There are many different business services involved. Find an available franchise and check out the company’s website. Look for information for franchises or investors.
Big or Small Franchise Opportunities
Franchisees execute the franchisor’s proven business system. The company’s size may determine the costs and support. It can impact how much freedom you will have. This includes initial and ongoing training and business support.
A larger franchisor will likely offer more training time and instruction. They have a larger staff dedicated to working with franchisees. Larger franchises also allow you to be associated with a larger advertising campaign and a widely known and trusted brand.
The largest companies have more rules governing what their franchisees can and cannot do. In smaller franchises, an owner may have more room to experiment or operate the business to suit their tastes.
Talk to Existing Franchisees
You should talk to franchise owners about their experience. Contact current owners in your area and other parts of the country. Demand for a product or service may be different among different people in different parts of the country. Ask how long it took to become profitable during the initial and ongoing training and communication with the parent company.
Franchise Agreements
A franchise agreement will define the relationship between you (the franchisee) and the parent company (the franchisor). It is strongly recommended that an attorney review these documents with you.
The franchisor must also give potential franchisees the Uniform Franchise Offering Circular (UFOC). The franchisor provides the UFOC at least 10 days before signing any contracts. The UFOC contains disclosures about:
- Expenses
- Financial statements
- Obligations of both parties
- Past litigation
- Other important information
Contact a Franchise Lawyer
Buying and opening a franchise means investing in someone else’s established brand and business model. Some of today’s largest companies are franchises, including 7-Eleven, Taco Bell, Subway, UPS Store, and McDonald’s.
A new franchise owner has so much to do, including:
- Negotiating with the lenders
- Find the right real estate location
- Contacting insurance providers
- Preparing the licensing agreement
- Submitting forms to the Federal Trade Commission
- Reviewing the franchise disclosure documents
- Serving as the point of contact with the franchise company
An attorney who knows how to do this will be an invaluable asset and a good way to begin your franchise journey. To help you navigate your franchise journey, contact an experienced business franchise lawyer near you.