Many entrepreneurs are attracted to starting franchise businesses. When done correctly, franchise opportunities can pave the way to profitable business ownership. With a franchise, you can step into a successful business with a strong brand and a history of success.
Buying a franchise can be a life-changing decision for those who don’t want to build a new business from the ground up. With this model, you join a business that has already proven successful. Franchises operate with established systems in areas like pricing, marketing, and branding.
However, starting a successful franchise is not as simple as finding a brand and investing in it. Many people think of a franchise as a “business in a box” with low risk and easy success. While franchising can lower the risks, it doesn’t guarantee success. Picking the wrong franchise or making common mistakes can lead to avoidable disappointment. The following tips can help you reduce risks and increase your chances of success in franchising.
Tips for Starting and Running a Franchise Business
Do Your Research
Before exploring franchise opportunities, take the time to research the franchise system you’re considering. The best time to determine if a franchise is right for you is before signing any contracts or paying any money. Make sure you learn the basics of franchising and the industry you’re interested in. A great resource for franchise information is the Federal Trade Commission’s Guide to Buying a Franchise.
Don’t commit to a franchise until you’ve considered your goals for the business. Review the disclosure document, speak with current and former franchisees, and assess the brand’s reputation and presence in the market. It’s important to know who your business competitors are and to understand the franchise’s track record and history.
Franchising is a specialized field, so having a knowledgeable team can help you spot things others might miss. Though the initial research may take some time, it’s well worth the effort. Even if you decide against a franchise, you’ll know that your decision was based on solid information. And if you find the right one, you’ll be better prepared to succeed.
Consult with a Franchise Attorney
Expert advice is crucial throughout the franchising process. This is a major investment, so it’s important to have qualified professionals on your side. A franchise attorney can guide you through the agreements, risks, opportunities, negotiations, and restrictions. Franchise legal documents can be tricky—changing one small word can have a big impact on the terms. Make sure you hire an attorney who specializes in franchise law to help you navigate these complexities.
Secure the Right Financing
Opening and financing a franchise can be more complicated than getting a home mortgage. Unfortunately, many entrepreneurs don’t realize this until it’s too late. Business financing differs from personal financing, and every bank has different rules. If you’re denied by one lender, it can delay your ability to secure financing from another, sometimes for months. And sometimes, rejections have nothing to do with your personal qualifications but rather the bank’s own preferences.
A professional who understands the bank’s processes can help you structure your application in a way that increases your chances of approval. Be prepared to put down at least 20% for the franchise. You may need to dip into savings or liquidate other investments, but there are also options like combining SBA loans with Rollover for Business Startups (ROBs), which allows you to invest your 401(k) without penalties or taxes.
Use the Franchisor’s Support
Another key tip is to work closely with the franchisor’s team during your first few months of operation. Most franchise systems offer startup support, which can be a great asset. Franchisors have the experience of opening multiple locations and can provide valuable market insights. They can also assist with marketing efforts.
You’ll also benefit from the support of other franchisees. Many new franchisees meet helpful colleagues during training, and these relationships can grow into a valuable support network. Leaning on this network can help you avoid common mistakes and challenges.
Have a Backup Plan for Capital
It’s not unusual for new franchisees to run out of money or take on debt when opening their business. This often happens because they stray from their initial budget. Stick to the franchise’s recommended budget and avoid spending money on things that aren’t necessary. It’s also a good idea to arrange for extra capital in case unexpected costs arise. It’s always better to be over-prepared.
Follow the Franchise System
Finally, follow the franchise system exactly as it’s designed. Some franchisees try to pick and choose which strategies to follow, ignoring the ones they don’t like. However, the strength of a franchise lies in its proven system. The franchise model became successful for a reason, so follow it step by step without skipping anything. You’ll be glad you did.
Learn More About Franchising Opportunities
Franchise opportunities come with a proven business model, but like any business, they involve risks and challenges. By following these tips and staying focused on your goals, you can navigate the franchise process with confidence and improve your chances of success.