Have the capital to pay a franchise fee and open up a location
A franchise can be a great opportunity for a business owner with some capital to invest in their own and their employees’ future. It gives entrepreneurs an opportunity to partner with some of the biggest brands in the U.S. and provides built-in resources, training and expertise. In exchange for a franchise fee and royalties, they will provide you with support, training, stock, expertise and marketing to launch your franchise quickly.
In this guide we’ll explore everything you need to do to set up your franchise business and maximize your chances for success. We’ll cover:
How you can understand the world of franchises
Questions you should ask to see if you’re ready to start a franchise business
How to plan out your franchise business and the best legal structure for your new organization
The various rules and regulations you will need to follow
Information on taxes and finances for your franchise business
How to hire employees, marketing and administration
Resources for your franchise business
... and much more
By the time you’ve read through our complete franchise business guide, you will have all the information you need to set up and manage a thriving franchise business. Let’s get into it.
Understanding the World of the Franchise Business
Key Franchise Business Background Data and Statistics
The size and success of franchise businesses might surprise you:
Franchise establishments across the country employing nearly 9 million people.
Total revenue generated by franchise businesses every year.
In other words, franchising is a significant, successful and diverse part of the U.S. economy. Franchise businesses do very well in the U.S.
You get access to a business with a recognized brand, immediately setting you apart from independent businesses. Franchisors have spent time, effort and millions of dollars on building their brands and creating trust with consumers.
Local marketing and strong branding will be essential to your success. You will likely need a website and a strong social media presence too.
Franchisors are familiar with helping their franchisees get set up. They will provide resources, training, advice, coaching and support in creating a successful business.
Results are not guaranteed
Even with a successful franchisor behind you, results are not guaranteed. The success of your business will still be mainly down to your management skills, marketing, customer service and the dozens of other actions an entrepreneur has to take to make this business a success.
You need to pay fees
You will need to pay a fee to buy a license to start a franchise, and then continue to pay an ongoing royalty or other fees to the franchisor. Initial fees can run from anywhere from $50,000 up to several million dollars depending on the type of franchise you want to open. You will then be expected to pay a percentage of your revenue to the franchisor periodically to continue operating the business.
There are rules to follow
Franchisors often have strict rules you will need to agree to. This could be anything from signage and staff uniforms to how you market and talk about your business. The agreements you have to sign are likely to be long and detailed.
You need to convince the franchisor
You do not need to take in and sell stock, meaning you don’t have money tied up in inventory
Is Franchise Entrepreneurship For You?
Franchise entrepreneurship could be for you if you:
Can use the marketing and branding of a national organization
Can follow the rules and regulations of the franchisor
Want support and help with starting the business
Don’t mind paying ongoing royalties
Franchise Business Structure & Examples
Here are some of the biggest franchise businesses in the U.S. listed by category:
Choose the Right Business Structure and Register Your Franchise Business
Now you have all the background information for your franchise business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are four main business structures. They are:
For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide.
In most cases our recommendation would be to create an LLC. We’ve got a complete guide to everything you need to do, and we can even set one up for your franchise business. LLC formation does vary from state to state, but we’ve got you covered wherever you are.
Most franchisors will insist that you have a proper legal structure around your business entity, and most will expect to see that you have formed an LLC. Their formal agreement will likely be with your business rather than with you personally.
Set up & Maintain Your Franchise Business
Once you've legally created your franchise business, you’ll need to get some other things in place.
Your franchisor may have strict rules about exactly where you can set up and the location they want to see you take over. You may be restricted from opening up too close to any other franchisees.
Premits and licenses
In addition to the strict rules and agreements you will have with the franchisor, there are also federal, state, local and industry-specific permits, licenses and regulations you will need to follow. Incfile can conduct a Business License Research package for you or you can take the time to do the research yourself.
Finances and Taxes
You will need a separate business bank account for your franchise business. You might also want to consider a business credit card. Additionally, you will also need to keep careful bookkeeping records and file business and personal taxes. Here at Incfile, we can even help you file your taxes.
The type of equipment you need depends on the franchise business you run. Your franchisor will be able to provide guidance and recommendations on what to buy and may even have special arrangements with major vendors who can supply you with the equipment you need. Make sure you understand exactly what you’re spending money on so you can write it off against business expenses.
Much of your marketing will be handled by the franchisor, so it’s important to understand exactly what they will be doing and what you need to do. See if you are featured on their overall website, or if you need to create a website or other marketing collateral of your own.
It’s very likely you will need to hire several employees. Again, this is an area where the franchisor can help as they probably have specialized recruitment, hiring, training and employee management plans.
Software and Process
The franchisor may have specific software (e.g. point of sale software) that they need you to use. Make sure you understand software requirements and details.
Most states require businesses to file an Annual Report report once a year. You will also be expected to pay estimated taxes on what you plan to earn in the current business year. Your federal, state, regional and city business licenses and permits may need to be renewed on a regular basis, typically once a year.
The Complete "Start Your Business" Checklist
A Clear and Comprehensive Guide to Starting Your Business the Right Way
Useful Online Tools for Your Franchise Business
Here are some really great online tools for managing your franchise business. They will reduce the time you spend on administration, help you to collaborate with others and free up your time to grow and manage your new venture.
Please note: This post contains affiliate links and we may receive a commission if you make a purchase using these links.
Starting a franchise business is an amazing opportunity for many entrepreneurs. Provided you have the capital to back you up and you can meet the franchisor’s rules and regulations, you will see huge benefits from their branding, market reach and support. With a vast array of franchises available, you’re sure to find something that meets your vision for the future.