Owning a business is a dream for many people, but 8 out of 10 small businesses fail within their first year.
One of the leading causes for that failure is because new businesses often lack the experience needed to overcome the challenges of the first year in operation.
The easiest way to overcome this? Open a franchise.
Franchises offer individuals an opportunity to start with an already developed brand from day one.
Wondering how to open a franchise? It’s easier than you think, but it’s still important to know what you’re getting into.
Here are six of the most important questions to ask when thinking of becoming a franchisee.
1. How do I decide what type of franchise to open?
There are hundreds of franchise opportunities out there. The key to finding one you’ll love is to focus on your passions.
Do you eat, sleep, and breathe coffee? Open a franchise with a coffee chain.
Are you passionate about keeping spaces clean? Consider opening a cleaning service.
When you become a franchise owner rather than opening a business in the same industry on your own, you’ll be given the tools you need to succeed more quickly.
2. How much do I need to invest in the business?
Opening any type of business requires some up-front investment. Business loans can help give you the money you need to get off the ground.
Opening a franchise is a lot like opening an independent business. There’s the cost of the building to cover, furnishings to buy, inventory to pay for, and employees to hire and train.
Franchise opportunities have most of those same expenses, but they also require you to pay a franchise fee to the parent company. Depending on the franchise, this amount can range from $10,000 to well over $45,000.
Keep in mind that the total cost you’ll need to cover will vary from franchise to franchise. For example, Dunkin’ Donuts requires a startup investment of between $40,000 and $90,000.
McDonald’s, on the other hand, requires that you have a minimum of $955,000 of your own personal money to even be considered for the franchise.
3. What do I get out of opening a franchise instead of opening my own company?
Though the benefits will vary from franchise to franchise, you can expect ongoing support and training from the parent company.
When you start your own business, you have to develop everything from the ground up. This includes the brand, marketing materials, business strategy, and relationships with suppliers.
When you open a franchise, the parent company helps you with all of those things. You’ll have the support of an already established brand, approved logos, a list of reliable suppliers, and access to a solid and proven business strategy.
However, it’s important to remember that you’ll be limited in the aspects of the business that you can change on your own.
Part of owning a franchise is consistency with the parent brand. Deviating from that too much takes away from the franchise experience.
If you’re looking to have complete control over the business, opening your own company without the backing of a franchise may be the best option.
4. How can I tell if a franchise is reputable and reliable?
Before opening any business, it’s important to do your due diligence and research the industry and your community to see how the business might do.
With franchises, it’s no different. You’ll want to research the company itself and see how much sales have grown over the last year both in your region and the entire service area.
Don’t be afraid to reach out to the franchisor directly. They should be able to answer your questions quickly and clearly. If they can’t, or if you end the conversation feeling more confused than you did when you started, consider working with a different company.
You can also speak with current and former franchisees to learn about their experience.
With current franchisees, ask about the type of support they receive, how much they typically earn, and what percentage of profit goes back to the franchisor each year.
When speaking with former franchisees, ask what made them leave in the first place. Was it circumstances out of their control or did the franchisor make it impossible to do business?
Knowing these things will help you make the best decision for your business.
5. How much time can I afford to invest in the business?
If you’re expecting to open a franchise and not have to put in long days in the beginning, you’ll be sorely disappointed.
Opening any business requires work and you may need to put in 12 or 15 hour days six days a week when you’re first starting out.
A franchise is no different.
Before you start looking for financing options and business loans, make sure you can handle the time commitment.
Are you planning on working another job at the same time? Does your family need you to be home at a specific time? Understand that these things may not be possible even if you’re becoming a franchisee rather than starting from scratch.
6. How successful are existing franchises?
When you’re thinking of how to open a franchise, it’s important that you consider the success of the existing locations. This will help you determine whether or not the franchise is worth investing in.
If there are tons of stores that are succeeding quarter after quarter, the company is likely a good investment. However, if stores are failing left and right, it’s a good sign that the franchise is not worth your time.
Similarly, it may be helpful to look at how focused the company is on franchise locations rather than corporate-owned locations.
When the company focuses on its franchisees, their priorities will align with your own. If they’re more focused on running corporate-owned stores which don’t have to worry about franchise fees each year, they’re not the best fit for your needs.
You can always compete with other franchisees, but competing against a company-owned location that can keep all of its profits without paying the fee is far more difficult.
How to Open a Franchise
When considering how to open a franchise of your own, you’ll always need start-up capital.
Contact us today to discuss your business loan options and start laying the foundation for your dream business.