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How to Start a Franchise Business

What do household names like Subway, Cinnabon, Jiffy Lube, Ace Hardware, Hertz, Marriott, Dunkin’ Donuts, 7-Eleven, Jimmy Johns and H&R Block all have in common? They’re all franchises — businesses that license out their name, backing, branding and processes to entrepreneurs who want to own a piece of the pie and grow a business without worrying about things like branding and marketing.

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:

franchise business
  • 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:

800K

Franchise establishments across the country employing nearly 9 million people.

$900B

Total revenue generated by franchise businesses every year.

franchise business
20% Owned by women and over
40% Co-owned by a man and a woman
  • Around one in seven franchise businesses are owned by U.S. military veterans.
  • Franchises exist across many sectors — fast food, restaurants, convenience stores, retailers, financial advice, hotels, car rentals, service providers and many more.
  • There are over 3,000 franchisors licensing out partnerships to entrepreneurs who can benefit from the support they provide.

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.

Advantages of a Franchise Business

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Branding

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.

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Marketing

Franchisors continue to spend lots of money on marketing. Nationwide print, online, TV, radio and other advertising will help to promote the overall brand and your positioning as a franchise in your local community.

Series LLC

Support

Franchisors are familiar with helping their franchisees get set up. They will provide resources, training, advice, coaching and support in creating a successful business.

Disadvantages of a Franchise Business

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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.

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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.

Series LLC

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.

S Corporation

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.

Questions to Ask Before You Start a Franchise Business

Is Franchise Entrepreneurship For You?

Franchise entrepreneurship could be for you if you:

  • Have the capital to pay a franchise fee and open up a location
  • Don’t mind paying ongoing royalties
  • Can follow the rules and regulations of the franchisor
  • Want support and help with starting the business
  • Can use the marketing and branding of a national organization
What Are the Main Challenges for an Amazon Seller Entrepreneur?

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:

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McDonald's

Fast Food Franchises

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KFC

Chicken Franchises

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Burger King

Fast Food Franchises

S Corporation

SUBWAY®

Sandwich & Bagel Franchises

S Corporation

7 Eleven

Convenience Store Franchises

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Hertz

Car Rental & Dealer Franchises

Limited Liability

Pizza Hut

Pizza Franchises

Series LLC

Marriott International

Hotel Franchises

S Corporation

Wyndham Hotels and Resorts

Hotel Franchises

S Corporation

Hilton Hotels & Resorts

Hotel Franchises

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RE/MAX

Real Estate Franchises

Limited Liability

Domino's Pizza

Pizza Franchises

Series LLC

Dunkin' Donuts

Bakery & Donut Franchises

S Corporation

Ace Hardware Corporation

Home Improvement Retail Franchises

S Corporation

Chem-Dry Carpet Cleaning

Carpet Cleaning Franchises

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Taco Bell

Fast Food Franchises

Limited Liability

Papa John's

Pizza Franchises

Series LLC

Anytime Fitness Inc.

Gym Franchises

S Corporation

JAN-PRO Cleaning Systems

Commercial Cleaning Franchises

S Corporation

Dairy Queen

Fast Food Franchises

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Choice Hotels

Hotel Franchises

Limited Liability

Liberty Tax Service

Tax Franchises

Series LLC

Baskin-Robbins

Ice Cream Franchises

S Corporation

Little Caesars

Pizza Franchises

S Corporation

NOVUS Glass

Auto Glass Franchises

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:

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Sole Proprietorship

This is the "default" business
structure and is what your
business will be if you decide
not to create a more formal
structure. We don't
recommend this type of
business as it doesn't give
you the legal protections you need.

Limited Liability

Limited Liability
Company or LLC

The most common type of business entity. An LLC is fast, simple and inexpensive to setup and maintain. It protects your personal finances and assets and is a great way to start your real estate

Series LLC

Series LLC

This is a special type of LLC entity that's only available in certain states. It allows you to create "mini" LLCs, each with their own limited liability and separate assets, under the umbrella of a master LLC.

S Corporation

S Corporation

This is a more complex type of
business and isn't generally
recommended for smaller
organization.

C Corporation

C Corporation

These are the largest and most
complex types of businesses
and are far more than the
average entrepreneur or
business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you’ve still got questions, we’ve answered them to help you choose the right business structure.

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.

franchise business
Business location

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.

Permits 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.

franchise business
franchise business
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.

Equipment

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.

franchise business
franchise business
Marketing

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.

Software

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.

franchise business
franchise business
Employees

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.

Business maintenance

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.

franchise business
Our Start a Business Checklist will also help you get your franchise business going in the best possible way.

Conclusion

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.