How to Start a Franchise Business

There are many reasons to start a franchise business, such as operational support, brand power, less risk, and a proven track record.

Whatever your reason may be, owning a franchise involves many moving parts. Even though it has a proven path of success compared to starting a business on your own, it helps to have resources at your fingertips to guide you through the franchise process.

Pros and cons of owning a franchise business

Every venture has its risks and owning a franchise is no different. Knowing the benefits and drawbacks of franchise ownership will help you know what you’re getting into so that you can feel confident investing your money in this industry.

Pros of owning a franchise

  • Less risk
  • Proven business model
  • Familiar brand name
  • Built-in consumer
  • Support

Cons of owning a franchise

  • Franchise fees
  • Royalty fees
  • Marketing fees
  • Lack of autonomy
  • Complicated selling process

How to pick the right franchise

How you answer the following questions will help you choose the right franchise for you.

  • What is your budget?
  • What relevant experience do you have?
  • What business experience do you have?
  • How do you want to be involved in the franchise?
  • How much support will you need?
  • What are your professional goals?

The last question is the most important one because it will direct every aspect of your franchise experience. For example, do you want to own more than one franchise? Do you want to use a franchise as a starting point for your own entrepreneurial ventures?

How to plan your business strategy

After you pick your franchise, it’s time to get to the fun stuff—business strategy.

A good business strategy shows the franchise why they should put their business in your hands. It might be a good idea to include:

Market research

Franchisors want to know that they can trust you with their business. So it will help to do your due diligence by looking into their customers, competitors, and branding.

Possible locations

It helps to choose locations that are already used by the franchise’s customers (i.e. a mall might be a good location choice if the franchise’s target customer is the average teenager).

Your unique value

Franchise ownership is a two-way street. You’re investing in their company, but they’re also investing in you. So, letting them know the unique value you provide with your experience, expertise, and personality could be a good way for you to show them how you can contribute to their brand’s success and further their goals.

SuperMoney Pro tip:  It might also help to study how other entrepreneurs have found success with this brand. There’s no need to reinvent the wheel, especially in the franchise industry. Many franchise owners have tried-and-true paths to success. Studying their methods will do two things: 1) give you more tools to create your own success and 2) make you look good to the franchise you’re trying to buy.

How to get funding

There are a few different ways to get funding for your franchise.

  1. SBA loan. For your convenience, you can locate all of the franchises the U.S. Small Business Administration works within their franchise registry.
  2. Franchise-specific finance company. There are finance companies dedicated to financing franchises that will lend you money directly or connect you with lenders.
  3. This is where that research mentioned above comes into play. Some franchisors are really committed to your success and will help you qualify for a loan or reduce the fees they charge.
  4. Retirement rollover. You can use your retirement funds to cover your startup costs if you have at least $50,000 in your retirement account.
  5. Traditional loan. Getting a traditional loan for a franchise is just like getting any other business loan. Some banks even offer loans that are tailor-made for franchises.
  6. Personal loans. If your credit is good and your business is new, a personal loan may offer the lowest rates and most favorable terms. Of course, you will be personally responsible for the debt if the business fails.

The franchise start-up process

Now you know how much you want to spend and have put together a business plan, it’s time to submit an application. What happens next is really important: the interview.

Franchisors want to know who will be representing their brand, which means that interviews are often a mix of phone calls, meetings, and visits. This isn’t just for their benefit. You want to know who you’re going into business with, too. The interview process will give you an intimate view of the brand you’re buying into.

Have well-researched questions prepared before the interview so that you can make the most of your time with the franchisors.

Running a franchise isn’t always a bed of roses. It’s just like any other business and requires vision and hard work to make it a success. However, they are a good choice for if you have the appetite of an entrepreneur and want the safety net of a proven business.

Nevertheless, just like any other business, it’s helpful to know what you’re getting into so that you can make the most informed decision for yourself.

If you feel ready to take the next step, compare rates and terms with SuperMoney’s business loan engine and read this article on the different types of business loans available to franchisees.

Related reading: If you were reading this article to prepare to become a Dutch Bros franchisee, we’re afraid you’re too late. Dutch Bros has bought out all its franchisees and no longer offers franchises. Still, there’s much to learn about franchising, and quality caffeinated beverages, from the Dutch Bros story. Curious? If so, read How Much Is a Dutch Bros Franchise: Cost + Fees.