Franchising offers an exciting opportunity to start your business using the established brand and operating model of another company. Examples include restaurants, gyms, and more. While running a franchise requires hard work, many success stories prove it can be a rewarding venture.

For instance, Algy and Kermie Irvin opened a successful Painting with a Twist franchise in 2009, providing their community with creative entertainment and achieving impressive growth, with a projected annual increase of 19%.

Feeling inspired to start a franchise business? Read on to learn about the different types of franchises, their advantages and disadvantages, and how to get started.

Table of Contents

• What Is a Franchise?
• Advantages and Disadvantages of Starting a Franchise
• Types of Franchises
• Key Considerations Before Starting a Franchise
• 7 Steps to Launching Your Franchise

What Is a Franchise?

When you hear “franchise,” brands like McDonald’s and Dunkin’ Donuts may come to mind. A franchise is a legal agreement between a franchisee (the business owner) and a franchisor (the company). This agreement allows the franchisee to sell the franchisor’s products and use its branding.

As of 2022, around 792,000 franchises operated in the U.S., contributing about $827 billion to the economy. But how do you decide which franchise to open, and what steps are involved? Let’s start by exploring the pros and cons of franchising.

Advantages and Disadvantages of Starting a Franchise

Advantages

1. Established Brand Recognition
   Building awareness for a new business can be tough. Franchises solve this by allowing you to leverage the franchisor’s existing reputation, marketing tools, and resources.
2. Built-In Customer Base
   Franchises come with loyal customers who already trust the brand. This reduces the time and effort needed to attract and retain customers.
3. Proven Business Model
   Franchisors provide tried-and-tested products and services, increasing your chances of long-term profitability.

Disadvantages

1. High Startup Costs and Fees
   Starting a franchise can be expensive, often requiring $20,000 to $100,000 or more. You’ll also pay ongoing royalties, typically 4%–12% of revenue, or a flat monthly fee.
2. Limited Creativity
   Franchise agreements often limit your ability to innovate. Franchisors control product offerings, pricing, and even your location.
3. Financial Oversight
   Franchisors may monitor your financial activities, which could feel intrusive if you value financial privacy.

Types of Franchises

1. Restaurant Franchises
   These include popular fast-food chains and full-service restaurants such as McDonald’s, Dunkin’ Donuts, and Sonic Drive-In.
2. Retail Franchises
   Covering products and services, examples include 7-Eleven and The UPS Store.
3. Business Services
   Franchises like Great Clips and Sports Clips focus on professional services.
4. Health and Fitness
   Brands such as Planet Fitness and Massage Envy cater to wellness enthusiasts.
5. Real Estate
   Franchises like RE/MAX and Keller Williams provide opportunities in property management and sales.

Key Considerations Before Starting a Franchise

• Passion and Interests: Choose a franchise that aligns with your interests. For example, if you enjoy fitness, consider opening a gym franchise.
• Market Demand: Assess whether your community needs the products or services the franchise offers.
• Talk to Franchise Owners: Visit existing franchises and ask owners about their experiences, including challenges and successes.

7 Steps to Launching Your Franchise

1. Evaluate Costs
   Initial investments include franchise fees (often $20,000–$50,000), equipment, supplies, and real estate. Consider financing options like SBA loans to cover these expenses.
2. Understand Franchisor Requirements
   Franchisors may require specific qualifications, such as a strong credit score, industry experience, or a certain net worth.
3. Review the Franchise Disclosure Document (FDD)
   The FDD outlines the financial and operational details of the franchise agreement. Read it carefully or consult a lawyer to understand your obligations.
4. Sign the Franchise Agreement
   This legal contract formalizes your role as a franchisee. Seek professional advice before signing.
5. Choose a Location
   Work with the franchisor to select a location that aligns with their recommendations and your business goals. Consider factors like traffic patterns and competition.
6. Complete Training
   Franchisors typically provide training on operations, marketing, and management to help you run your business effectively.
7. Open Your Business
   Prepare for a grand opening with marketing materials provided by the franchisor. Many companies also offer on-site support during the launch.

Ready to Get Started?

Now that you know what it takes to open a franchise, you’re ready to begin your journey. Use this guide to make informed decisions and turn your entrepreneurial dreams into reality.