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.
Advantages and Disadvantages of the Franchise Business
Here are the key things you need to know before deciding of franchising is right for you.
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
Understand Your Franchise Market
The market for your franchise business depends very much on the franchisor you set up with. They will be able to provide guidance and expertise on the types of customers you should be marketing to, although you will need to carry out your own market research as well.
Look into the likely demand for services in your area, speak to other franchise businesses in neighboring regions and understand who your competitors are. You should also talk to your franchisor about planned advertising and partnerships.
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
What Are the Main Skills, Expertise and Experience Needed to Be a Successful Franchise Entrepreneur?
The specific skills and experience you need depend on the franchising field you go into. For example, if you’re opening a restaurant, it will be all about managing staff and keeping diners happy. If you want to open an automotive service business, you will need to focus on good business processes and hiring expert mechanics.
General business skills that will be useful include people management for hiring and managing staff, financial management for dealing with cash flow and operations to ensure everything runs smoothly. In addition to the standard business skills, you will also need to follow the franchise rules and regulations, so a keen attention to detail will be critical.
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.