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Franchises are an excellent way to start a business. They offer entrepreneurs and business professionals the opportunity to get in on a plug-and-play business with a well-established reputation and brand already in place. But before you shell out the tens of thousands of dollars needed to buy one, let’s break down what you can expect.
What is a franchise?
A franchise is an existing business that grants an individual or individuals the right to conduct business with the use of their branding, trademarks and other identifying aspects of the business. The franchisee pays a royalty and often a startup fee for the right to conduct business under the franchisor’s name and business structure. Some of the most notable franchises are McDonald’s, Starbucks, Subway and Domino’s Pizza. But, not all franchises are restaurants — many well-established businesses offer non-restaurant franchise opportunities, including Ace Hardware, FastSigns and 7-Eleven.
Related: A Billionaire Who Operates More Than 2,400 Franchises Knows These Types of Franchisees Make the Most Money
Why would you choose a franchise over starting your own business?
One of the biggest benefits of owning and operating a franchise is the lack of business experience that’s needed. Franchisors offer complete businesses, meaning everything is already in place, proven to work and needs to be maintained. As a franchisee, your job is primarily to manage the business based on a proven business structure already in place, not to create and develop new procedures. The latter can be a good and bad thing. On the one hand, the franchisor will usually train you to attain the business skills required to operate their franchise. On the other hand, you are heavily restricted from deviating from the companies’ protocols and must adhere strictly to the franchisees’ rules and regulations. This, however, can be appealing to inexperienced and new business owners.
Another reason to choose a franchise business over starting a new one: You own a business with an established brand. This is a huge draw for franchise owners. You don’t have to worry about massive marketing expenses and brand exposure. With an established brand, you’ll have clients and customers lining up on the day you open your doors.
Related: Why Opening A Franchise Business Is Better Than Starting Your Own
What are the steps for owning a franchise?
Research: Research the franchise you are interested in owning. It should be a well-established company with an excellent reputation and solid sales record.
Cost & fees: Understand the franchise costs and fees. Ensure you fully understand not only the cost to own the franchise but also the potential profitability.
Application: Be prepared for the application process. Proof of your financial ability to fund the deal will most likely be required. You’ll also need to be ready to answer some questions about yourself, your background and why you’re interested in their franchise opportunity.
The walk-through: Be ready for what some franchisors call “the walk-through.” Some businesses request that you visit one of their facilities to see them in action. As the franchisee, you’ll get the opportunity to see exactly what you’re getting into, and as the franchisor, they get to explain firsthand what they expect from a franchisee.
Agreement and financing: In this step, all parties on board are set to become business partners, and all that’s left to do is go over the franchise agreements and funding. It may be a good idea to consult an attorney to ensure you fully understand all the agreements before moving forward with the purchase.
Once you’re officially granted licenses as a franchisee, you’re ready to pick out a location and start your business. Most franchisors are happy to assist you with anything that will increase your chances of success. Ask questions and take advantage of any and all training that they offer for you and your staff.
Related: To Make a Smart Franchise Purchase, Ask These 3 Contrarian Questions
Conclusion
Owning an established franchise may be an easier way for some individuals to become business owners, but all business ownership comes with its share of challenges. Do your due diligence and consider hiring a franchise attorney to explain in layman’s terms the key provisions in the franchise agreements. As a franchisee, you get to own a business, but it’s an established business with existing rules and regulations. It’s imperative that you understand your obligations and responsibilities as a franchisee before you enter into any binding agreements.
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