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Franchise business ownership is becoming more popular. According to Guidant's 2023 Small Business Trends report, franchise owners make up 46% of small business owners-and for good reason. Buying a franchise is a great way for aspiring entrepreneurs to get into business and for experienced business owners to take on new projects.
Keep reading to learn more about franchises and how to become a franchise owner.
A franchise owner is a small business owner. Instead of creating their own business idea and product, though, they own and operate a business that comes with an established name and idea. This original business is called the franchisor. A franchise owner-also known as a franchisee-buys the right to sell the franchisor's products or services under the existing name.
Franchise owners have the same responsibilities as any other small business owner. They have to hire, train, and manage employees; plan marketing and advertising campaigns; order and organize inventory; handle customer service; fill out paperwork, pay bills, and manage loans; and strategize for profitability and growth.
You don't have to be a longtime business owner or entrepreneur to become a franchise owner. You just have to be passionate about the franchisor's business model and products/services, and be willing to invest your time, knowledge, and finances to help the franchise succeed.
Franchise owners should also have strong communication skills, good problem-solving abilities, and great management skills. They should be able to follow instructions and take initiative well. Some franchisors require franchisees to have a bachelor's degree or at least one or two years of experience in a related field.
However, perhaps most importantly, franchise owners should have both the time and funds to buy and grow a business.
Franchise costs vary widely. The purchase price could be anywhere from $500 to $500,000, depending on the industry and specific franchise. Many affordably priced franchises fall in the range of $5,000-15,000. You can search franchises by cost on the Franchise.com directory.
Keep in mind that a franchise purchase price may or may not include equipment, supplies, and inventory. On top of that, you'll need additional funds to invest in marketing and hiring.
Take some time to educate yourself on franchise ownership and everything it entails. You may decide you want to apply for a managerial role to get more experience first or take courses to become a Certified Sales Professional (CSP) or Certified Professional in Human Resources (IPMA-CP).
Here are some other ways to learn more about franchise ownership:
The next step is to find a franchise for sale that aligns with your skills, interests, and life or business experience. Ideally, you want to find something you're excited about that also has growth and profit potential.
Start by browsing franchise search sites like Franchise.com, Franchise Grade, and Franchise Research Institute. After you make a shortlist of potential franchises, compare them based on the following factors:
It's a good idea to meet with the current franchise owner to get more information about the operation. You can ask about the factors listed above, what the franchise owner likes and dislikes about running the franchise, what specific challenges they've faced, and why they're selling it.
You might need to form a limited liability company (LLC) to run your franchise under. LLCs are a good option for franchise owners because they offer you limited liability protection as the business owner (meaning your personal assets are safe if the business defaults on its debts) and pass-through tax advantages (so you don't get taxed like a corporation). LLCs also typically have fewer paperwork and reporting requirements than corporations do.
Before you form an LLC, discuss your options with an accountant or consult a lawyer for advice on how to structure your franchise. Every state has different regulations for registering business entities; you can search for your state's Secretary of State's Office website here.
Financing your franchise with personal savings isn't always possible (or prudent), but business financing is a helpful alternative. Here are some options to consider:
Not sure what your funding needs are? Figure out how much money you should borrow.
Once you pick a franchise and feel confident about your funding options, submit a franchise application to the franchisor. You'll need to provide your resume, personal and professional references, and personal financial statements, among other documents.
If the franchisor offers you the franchise, they'll write up a franchise disclosure document (FDD) for you to review. The FDD provides more in-depth information about your specific franchise agreement, including the time commitment required and upfront costs and ongoing fees involved. The FDD also sheds light on the franchise's history and previous owners, and lists your obligations and responsibilities as the new franchise owner.
It's crucial to review the FDD in detail and run it by a lawyer so you know exactly what you're signing up for.
Once you sign your FDD, you can start building out your franchise and executing your plans. The first steps might include:
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