How To Start A Franchise: A Guide To Success

Written by
Rebecca Smith

Published
Nov 1, 2018

Nov 1, 2018 • by Rebecca Smith

Are you wondering if now is the right time to start a franchise? The answer is a resounding yes.

Franchising can be a profitable venture. Some industries, like real estate franchises, have a 21% profit margin, which is tremendous for any business.

With a franchise, you have a proven business system that works. You just need to apply them to your market. That's the biggest issue for many franchisees. Even though they have a proven system, they don't know how to apply it.

Keep reading to learn how you can start a franchise that's profitable from the start.

Pick Your Industry

Starting a franchise can be a simple as paying a franchise fee and getting started. If you were to go that route, you'd be missing a lot of steps to make sure your business makes money.

Your first step is to research your industry. You want to know if it's a highly competitive industry and how competitive it is in your area.

Let's say you're planning on opening a fitness center in a certain neighborhood. You'll want to know if the population is large enough to support it. You also want to know how many other fitness centers are in the area.

As you're researching different industries, you'll find that some are more profitable than others.

Take a Personal Assessment

As your weighing different industries, you'll find that some will be more demanding than others. You want to be honest with yourself about why you want to start a franchise. Do you have dreams of total freedom? Do you want to work for yourself? Do you want to support yourself, your family and work for yourself?

What do you expect your day to look like? Are you off at the beach while the business runs itself? Are you hands-on managing the day-to-day operations?

Your answers will dictate what kind of industry and franchise you will want. Any business will take a lot of work to set up, but some businesses will be able to run themselves.

Your lifestyle choices should play a major role in what business you choose. If you're looking for freedom, the last thing you want is to be stuck taking customer orders. You'd go from big dreams of being a business owner to creating a bad job for yourself. On top of that, you'd be your own horrible boss.

Set Your Budget

Starting a franchise will take money. Some of the best-known franchises require that you have a net worth of $750,000 just to apply for a franchise. Then, there's a franchise fee that can be as high as $2 million.

When you're looking at franchises in your chosen industry, you need to research your options. Some will have a big brand name and big franchise fee.

Will you be able to run the franchise at a loss until it becomes profitable? How much will the franchise operations cost and will you be able to afford them?

There are a lot of financing options available to franchisees, but you want to make sure that you're not saddled with massive debt.

Surround Yourself with a Great Team

Before committing to a franchise, you want to have a great team in place. You'll need a business attorney who can guide you through complex contracts and paperwork.

You definitely need someone on your team who's an expert in franchise accounting. Other experts can take care of your marketing and human resources to round out your expertise.

More Franchise Considerations

There are other things to consider when you're looking at a franchise. You'll want to know how long it will take to recoup your investment.

You'll also want to know about the franchise business itself. Franchises are known for their turnkey systems. On the downside, you may have little flexibility to adapt that system to your particular market. In some cases, its either do it their way or don't do it at all.

They may want to control the location you pick, the color on the wall, the equipment you have to purchase, and how your day-to-day operations are run. That's mostly for brand consistency and because they know that system works.

Be sure to check what kind of support franchisees receive as you're setting up your franchise. Will you get marketing support or business support?

The amount and type of support you receive as a franchisee will make all the difference in your business.

Franchise Research

You'll want to do two things in your research. The first is to interview other franchisees. Get their honest assessment of what they did well and what they'd do again. Be sure to ask what it's really like to work with the franchise home office as well.

The second thing that you'll need is the franchise disclosure document. You need to review this with a fine-tooth comb for any irregularities.

A few things you want to pay close attention to are franchise turnover, franchisee payments and revenue, and whether or not there are any lawsuits.

Franchise turnover is simply the percentage of franchisees who have exited the business. They could have sold, converted to an independent business, or cut ties with the franchise. A high turnover rate is a red flag.

A close look at a franchise revenue model will tell you a lot about the long-term profitability of the business. A franchise like Planet Fitness gets about 44% of its profits from equipment sales to franchisees. You have to look at that type of information objectively and determine if the business is a good investment.

Start a Franchise Today

A franchise can offer a great opportunity for anyone who wants to start their own business. When you decide to start a franchise, there's a lot of work that has to happen to make sure you have a solid foundation.

You need to do your homework and surround yourself with the right people to help you pick the right franchise.

Before you start a franchise, you'll want to read these articles about taking a vacation and creating a company culture.