Our biggest savings of the year
How to Start a Franchise
Kody Wirth | Oct 29, 2023
Franchising offers a pathway to business ownership that takes advantage of a proven idea and strong brand. You lose some autonomy and control—but get to work from an established playbook, learn from a successful franchisor, and, most notably not have to start a business from scratch.
So, is becoming a franchisee the best way to start a business?
Learn how to choose and start a franchise that fits your interests.
What is a franchise?
A franchise is a business owned by an individual (franchisee) but branded and supervised by a larger company (franchisor). Common examples include Subway, 7-11, and Hilton Hotels.
Purchasing a franchise grants you the right to use a tested business model, pricing, products, and marketing strategies.
Additionally, franchisees gain access to the company’s trademarked materials like logos and slogans—essential for establishing a brand identity.
How to start a franchise
1. Know your budget
There is always an upfront franchise fee, and franchisors often have financial requirements for potential franchisees. For example, some franchisors require franchisees to have a particular net worth.
Review your finances and assets to look for opportunities in line with your price range. Determine how you’ll finance the franchise, whether through personal savings, bank loans, or franchisor financing options.
2. Do your research:
You don’t want to waste time dreaming up your plans to open a specific franchise only to look at the fine print and realize it’s not a good fit.
For example: A Cafe Yumm franchisee must have a net worth of $500,000. If that isn’t where you’re at financially, look elsewhere.
Contact a current franchisee to learn more about the business if you can. What are their perceived pros and cons? What’s it like working with this brand? Are there any significant costs associated with this franchise?
Additionally, you need to check if a franchise is already running in your area. If so, the franchiser may be unlikely to approve another location in such close proximity.
3. Participate in an interview
A unique aspect of starting a franchise is that it’s not entirely up to you. You have to interview, almost like you’re applying for a job.
The format will depend on which franchiser you choose. The goal will be for you and the franchisor to review the specifics and determine if the franchise is right for you.
Take note of how much support the franchisors offer during setup and if they provide ongoing training.
4. Write a business plan
A benefit of starting a franchise is that many important aspects are well-established. However, you still need a business plan to cover how you will run your business, forecast sales and expenses, and outline employee needs.
Most importantly, you need a thorough market analysis that shows how this franchise will work in your local market. At a minimum, you need to detail who your target customers are and how they relate to or differ from the current franchise customer base. Luckily, most franchises offer assistance with this part of the process.
Check out our business planning hub to learn more about writing a detailed business plan.
5. Choose a suitable franchise location
Selecting a location can be complicated by specific requirements from the franchise owner. Size, setup, and even the atmosphere surrounding the business may limit your options.
Then, you must consider if the location makes sense from a performance standpoint.
- Is it going to attract your core customer base?
- Is there enough foot traffic?
- Is your business easily accessible?
Hopefully, the franchisor will assist in this process. If not, check out our complete guide on selecting a business location for more specific steps.
6. Sign the franchise agreement and review the FDD
Before you sign a binding contract outlining mutual obligations between you and the franchisor—you need to review the Franchise Disclosure Document (FDD) document.
The FDD contains a wealth of information, including:
- The franchisor’s background: History, business experience, and any litigation or bankruptcy history.
- Financial statements: Provides a clear picture of the franchisor’s financial health.
- Initial and ongoing costs: Details about the initial franchise fee, training costs, grand opening costs, royalty fees, and other related expenses.
- Training and assistance: Information on the training and support the franchisor will provide.
- Franchisee obligations: What is expected of the franchisee in terms of purchasing equipment, maintaining standards, advertising, etc.
- Territory: Whether the franchisee will have exclusive rights to a territory and the specifics of any territorial protection.
- Trademarks: Information about the franchisor’s trademarks, copyrights, and proprietary information.
- Renewal, termination, and transfer: The terms under which the franchise relationship can be renewed, terminated, or transferred.
- List of current and former franchisees: Contact information for current franchisees and those who have left the system recently.
- Earnings claims: If provided, details about the financial performance of existing units, though not all franchisors include this information.
- Restrictions: Details on any restrictions on what can be sold, sourcing and supply, and territory.
Before signing the FDD, review it carefully, preferably with the help of a lawyer.
7. Make your business legal
Aside from the franchise agreement and FDD, additional legal requirements exist to start your franchise.
- Set up a business structure: The franchisor may specify which business structure you must use.
- Federal and state registrations: At a minimum, you must apply for federal and state tax IDs. However, there may be additional requirements depending on your location.
- Business licenses & permits: Depending on the location and nature of the franchise, various local, state, or federal licenses and permits may be required.
- Tax registrations: Franchisees must register for appropriate federal, state, and local tax identification numbers and comply with tax obligations.
- Insurance requirements: Franchisees often need various insurance coverages, such as liability, property, workers’ compensation, and more, as mandated by law or the franchisor.
8. Stay updated on franchisor policies
Most franchisors provide training programs for new franchisees that cover everything from business operations to customer service.
However, this initial training may not cover everything, and franchisors may update their policies, marketing strategies, or product offerings.
Staying aligned with these changes ensures brand consistency and can impact the franchise’s success.
Should you open a franchise or start a business?
If you’re reading this, you’re likely more interested in opening a franchise than starting a new business. To be sure of your decision, let’s weigh the pros and cons of both options.
Things to consider when comparing franchise opportunities
Choosing the right franchise can be as challenging as developing a good business idea. Simplify the process and use these seven factors to help vet and select the right franchise.
History of franchising
Become familiar with how franchising has evolved into the business model it is today.
Common types of franchises
Franchising spans a wide range of industries. While there are countless specific franchise concepts—you can group them into several common categories:
Food and beverage
Establishments that prepare and serve meals and drinks, ranging from quick-service to full-service dining.
- Fast-food restaurants (e.g., McDonald’s, Subway)
- Sit-down restaurants (e.g., Applebee’s, IHOP)
- Coffee shops (e.g., Dunkin’ Donuts)
- Ice cream and dessert parlors (e.g., Baskin-Robbins, Dairy Queen)
Businesses that sell goods directly to consumers from physical locations offering a variety of tangible products.
- Convenience stores (e.g., 7-Eleven)
- Specialty stores (e.g., The UPS Store, GNC)
Franchises providing specialized services to individuals or businesses—emphasizing expertise or personalized care.
- Home services (e.g., Molly Maid, Mr. Handyman)
- Automotive services (e.g., Jiffy Lube, Midas)
- Health and fitness centers (e.g., Anytime Fitness, Gold’s Gym)
- Educational services (e.g., Kumon, Sylvan Learning)
Franchises that cater to other businesses, offering services that enhance business operations or efficiency.
- Printing and promotional services (e.g., Minuteman Press, FastSigns)
- Professional consulting and coaching (e.g., ActionCOACH)
- Commercial cleaning (e.g., Jan-Pro, Coverall)
Operate in the property market, assisting in buying, selling, or leasing properties, with a focus on market expertise.
- Century 21
- Coldwell Banker
Franchises that provide accommodations for travelers, including hotels and motels, emphasizing comfort and amenities.
- Hilton Hotels
- Marriott International
- Holiday Inn
Focus on enhancing appearance and well-being, offering services like grooming, beauty treatments, and wellness.
- Hair salons (e.g., Great Clips, Supercuts)
- Spas and beauty treatments (e.g., Massage Envy)
Centered around leisure and entertainment, providing venues or services for relaxation and fitness.
- Children’s entertainment centers (e.g., Chuck E. Cheese’s)
- Fitness and recreational sports centers (e.g., Planet Fitness, Club Pilates)
Cater to niche markets or unique services not covered in other categories, such as specific demographics or specialized needs.
- Pet services (e.g., Petland, Dogtopia)
- Restoration and disaster recovery services (e.g., SERVPRO)
What franchise should you choose?
It can be quite challenging to choose a franchise since there are over 3,000 different concepts available.
How do you narrow it down to one? Here are three tips:
1. Figure out what you’re good at
While you’re not coming up with a business idea, you can still use the same tactics to identify a winning franchise opportunity. The easiest place to start is by identifying and listing out your skills, strengths, and passions.
Maybe you’re a relationship-builder, an operations expert, or already have experience working with a franchise.
If you’re struggling to identify what you’re good at, consider conducting a SWOT analysis on yourself. This will give you a structured way to assess your strengths, weaknesses, opportunities, and threats.
2. Match your skills to franchise opportunities
Use your skills as a reference when exploring franchise opportunities. Remember, you must be a good match for the franchise owner.
Having industry-specific experience or skills can help sell them on your ability to run their specific type of business.
For instance, if you’re drawn to a commercial cleaning franchise because it’s B2B and aligns with your sales skills.
3. Keep an eye on market trends
Be vigilant about consumer and business trends to ensure your franchise choice is relevant.
Take note of popular opportunities, but don’t jump on them immediately. Do your due diligence and determine if the franchise trend is sustainable and not a fleeting fad.
As always, fall back on market research to understand consumer spending habits. If the franchise category you’re interested in shows customers straying away from known brands—it may not be the right time to jump in.
Start your franchise
Cooking up a brand new business idea has its value, but there’s no reason you can’t piggyback on a time-tested method and reap the benefits—as many franchisees are already doing today.
If you’re interested in buying a franchise to start or run your own business, learn all you can before you buy.
With planning and thoughtful execution, a franchise business can be just as rewarding as any other startup.
Check out our complete guide on starting a business to ensure you’re prepared to open a successful franchise.