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:

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.

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.

40%Co-owned by a man and a woman
20%Owned by women and over

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.

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.

Marketing

Local marketing and strong branding will be essential to your success. You will likely need a website and a strong social media presence too.

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.

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:

Have the capital to pay a franchise fee and open up a location

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:

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 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 franchise business.

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

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

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.

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Set up & Maintain Your Franchise Business

Once you've legally created your franchise business, you’ll need to get some other things in place.

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.

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.

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.

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.

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.

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.

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.

The Complete "Start Your Business" Checklist

A Clear and Comprehensive Guide to Starting Your Business the Right Way

Franchise Business Resources

The best place to start looking for your franchise business resources is with the franchisor itself. They will have devoted considerable time and effort to providing you with the resources, guidance and support you need to succeed.

See if they have an internet or intranet site where you can meet up with other franchisees to discuss business initiatives, issues and best practice.

Here are some other franchising groups and communities.

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.

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.

Start your Franchise Business with us, today