What You Need to Know About Buying a Franchise.

How to Start a Franchise

Here are the ten steps that you will take when you start a franchise.

Here are the ten steps that you will take when you start a franchise.

A smiling franchisee who is happy about her decision to invest in a Goddard School franchise.

Ten steps to starting a franchise

  1. Read through the franchisor’s franchise disclosure document (FDD). The franchisor is required by law to supply this document to prospective franchisees. The FDD tells you everything you need to know about a franchise, so be sure to study it before making any decisions. Pay particular attention to the FDD’s Item 19, which details the franchise’s earnings data. A franchise that values transparency will include the grosses, expenses and EBITDAs of all its franchises for the previous year. In other words, it should provide the most information available so you can make the most informed decision.

  2. Do your due diligence. Talk to other franchisees who have been in business a while. Ask them what they think of the business. What are the challenges? What are the rewards? What made them decide to open a franchise? Is the franchisor easy to work with? While this is obviously a great way to get information, it may also help to form working relationships with other franchisees if you decide to open a franchise.

  3. Experience a franchise in action. Visit a franchise during business hours, see how it works, see what the franchisee and the employees have to do on a day-to-day basis. This should give you a better idea of what being a franchisee is like. Also be sure to talk to customers. Are they happy with the service the franchise provides? Would they recommend it to others? Getting a feel for the customer base is just as important as seeing what a franchise does every day.

  4. Find a franchise that offers excellent support. The great thing about buying a franchise is that you go into business for yourself, not by yourself. But this concept only works when the franchisor offers the best support in all aspects of business operations, including, but not limited to, marketing, advertising, IT, finance, training and real estate. This is where a visit to the corporate headquarters comes in handy.

  5. Visit the corporate headquarters. Some franchisors host a “meet our team” day that allows prospective franchisees to tour the corporate office as well as meet the people who will be supporting their business needs. This is an excellent way to get a first-hand look at how the corporate office operates.

  6. Review the terms of your franchise agreement. If you are still interested in opening a franchise after researching it, the franchisor will give you its franchise agreement, which lists your obligations and theirs. It is a good idea to hire a lawyer with franchise experience to review the agreement to make sure it meets your expectations.

  7. Obtain financing. When you sign the franchise agreement, you will need to pay the franchisor. These initial costs, which vary from business to business, usually amount to hundreds of thousands of dollars. Many entrepreneurs need to secure a loan, such as a Small Business Administration loan or a bank loan, to pay those fees. A franchisor that offers excellent support will often have a franchise finance team that can help you navigate the loan process.

  8. Locate a suitable site for your business. Many franchises have specific site requirements that your business will need to meet. These may include things such as square footage, a minimum lot size and a minimum number of parking spaces. A high-quality franchise will staff real estate experts who will help you with the process of finding a suitable site.

  9. Receive training. You will need to complete a series of training courses, either at the franchise’s corporate headquarters and/or online, that will teach you everything you need to know about how to operate a franchise.

  10. Prepare to open your business. If you have never opened a business before, which includes many different things that need to be done, this process can seem daunting. A franchise with best-in-class support will provide assistance with this process, usually in the form of an openings team who will work with you to ensure your business has everything it needs prior to opening.