Starting a new business can be a bit overwhelming and challenging.
You have to think about aspects like what products to sell and marketing strategies.
While the process is doable, it can be incredibly time-consuming and expensive.
So, to maximize your earning potential, you can decide to open up a branch of an existing company.
If you’re trying to figure out how to start a franchise business, you’ve come to the right place.
In this article, we’ll walk you through everything you need to know about opening many locations.
We’ll also cover the steps you’ll need to follow to make your life easier.
- How Profitable Is Owning a Franchise Business?
- What You’ll Need to Start a Franchise Business [& Associated Costs]
- Do I Need a License or Certificates to Start a Franchise Business?
- Why You Should Consider Starting a Franchise Business as a Side Hustle
- How to Start a Franchise Business in 6 Simple Steps
- Things to Consider When Building a Franchise Business
- Inspiration: Franchise Business Ideas
- Frequently Asked Questions
- Similar Businesses to Consider Starting
- Wrapping Up
How Profitable Is Owning a Franchise Business?
When calculating franchise profits, there are many variables to take into account.
That includes the location, running costs, and a franchise fee for each branch.
On top of that, the number of franchises you launch will affect your revenue.
Sadly, that means it’s a little challenging to estimate the profitability.
To help you understand that, we can take a look at an example.
Let’s say that your franchise fee is around $50,000.
That means you’ll have to pay that amount to use the franchise brand name and products. However, this isn’t a pure expense.
The franchisor can deduct a few start-up expenses.
For instance, they’ll subtract the cost of finding a new location and training workers.
This can use up about 75% of the franchise fee.
So, at the end of the day, you’ll have to pay around $12,500.
Add to that, the new branch will have to pay the franchise owner around 4%-8% of the profits.
What You’ll Need to Start a Franchise Business [& Associated Costs]
There are many expenses that you need to take into account to start a franchise business.
In this section, we’ll take a look at the most notable costs.
- Franchise Disclosure Documents (FDD): To operate under another company’s name, you’ll need to ask for an FDD. The cost of the document can vary greatly depending on the type of industry and your location. Typically, acquiring FDDs can run you anywhere between $15,000 and $45,000. This is a large investment for most people, which is why you should consider getting a loan.
- Labor: When you open up a franchise, you’ll need to recruit new workers. This can cost around $5,000 based on the number of employees you hire. Plus, you have to train the laborers, which will cost an additional $1,000.
- Trademarking: If the firm you’re franchising has a registered trademark, you may need to pay an extra fee. On average, the expense shouldn’t exceed $3,000.
- New Entity Registration: To register your business with an FDD, there are papers you have to file. Thankfully, this should only cost a few hundred dollars.
- Operations Manual Guidelines: You may have to purchase guidelines and training sessions. These are rules to ensure the same quality of service across different branches. This can cost between $10,000 and $15,000.
- Legal Fees: When starting a new venture, there are a few legal fees to consider. That includes writing up a contract and filing paperwork. Depending on your lawyer, this expense should be around $5,000 to $10,000.
Do I Need a License or Certificates to Start a Franchise Business?
Typically, you don’t have to apply for any special licenses to launch a franchise.
All you need to do is present an FDD to the federal trade commission.
However, this isn’t always the case. Some states require a few other documents to make the branch legal.
That’s why it’s best to hire a lawyer.
They can help you navigate the red tape and move along the process.
Why You Should Consider Starting a Franchise Business as a Side Hustle
A franchise business is an excellent option when it comes to side hustles.
Let’s take a look at what makes this venture exciting and worthwhile.
- Easier than launching a new company: Setting up a franchise is pricier than starting a new firm, but it’s simpler. All you have to do is fill in the correct forms and pay the franchise fees.
- Operational aid: With a franchise, you don’t have to think about the day-to-day tasks of the company. The franchisor will figure out all the steps and share their ideas. That frees you up for other activities.
- Customer trust: An established franchise should have its own loyal clientele. That means you won’t have to wait long before your store is bustling with life.
- Low failure rate: While there’s always a chance a venture won’t work out, franchises usually turn a profit. That’s because of brand recognition.
How to Start a Franchise Business in 6 Simple Steps
Starting a business, even a franchise, can be a bit tricky.
So, to help you get started, let’s jump into the step-by-step process of launching the venture.
Step 1: Pick a Franchise
The first step involves choosing the existing franchise that you want to launch.
There are countless options on the market in a wide variety of industries.
For example, you can decide to open up a restaurant branch, or even a vending machine franchise.
To help you narrow down your choices, there are a couple of factors you should consider.
For starters, pick a business that you’re used to.
Selecting a company that you’re already familiar with should make the process easier.
Other than that, take the franchise fee into account.
Typically, the more successful a business is, the more expensive the licensing fee will be.
Step 2: Research the Franchise
Once you settle on a franchise, spend a little time researching the business.
Take a look at its revenue from previous years and its operating policies.
This market research will give you a better idea of whether the company is the right fit for you.
Another useful tip is to talk to existing franchisees.
They’ll have invaluable insight into the inner workings of the business.
If you’re finding it difficult to decide on a venture, you can hire a franchise consultant.
They should be able to guide you through the process and provide you with information.
On top of that, these consultants can help you with creating a business plan.
Step 3: Look for a Suitable Franchise Location
The location you choose for your franchise will affect the overall revenue.
That’s why you should spend a bit of time finding the perfect spot.
The easiest way to do that is to find your target audience.
Besides that, try to pick a location that’s far away from other franchisees.
Step 4: Sign the Franchise Agreement Paperwork
After you’ve done your due diligence, it’s time to sign on the dotted line.
To do that, you’ll need to raise the necessary capital.
You can choose to come up with the money on your own, or find investors.
Then, schedule a meeting with the franchise owners and draft the applicable documents.
During this process, it’s best to have your franchise attorney present.
They’ll understand the ins and outs of franchise law.
That way, you ensure everything goes smoothly and that you’re legally protected.
Step 5: Hire Workers and Train Them
With the paperwork out of the way, you can move on to hiring employees.
Most of the time, the franchisor will give you instructions on the type of workers you’ll need.
This should make the recruiting process much simpler.
Once that’s out of the way, all the staff, including you, will have to attend a few training sessions.
Step 6: Open Up Your Doors
Now that you have all the legal documents and the necessary staff, you’re ready to start working.
It’s best to launch the new franchise with a massive opening party.
This will attract new customers and raise awareness of your branch.
Things to Consider When Building a Franchise Business
Other than paperwork and expenses, there are a few other factors to consider.
Can You Run a Franchise Business by Yourself?
Running a business like a franchise system can be quite a challenge.
You have to follow strict guidelines and stay on top of the day-to-day tasks.
Unfortunately, this may be too much for one person to handle on their own.
For that reason, a prospective franchisee needs a little help to operate the business.
Lack of Control
As a potential franchisee, you won’t be able to make many changes to the operation of the business.
Without creative control over the company, your input will be incredibly limited.
Some people have a hard time adjusting to this fact.
Inspiration: Franchise Business Ideas
Here are a few franchise business ideas that can help you get started.
- Gym Franchise: Gyms are usually easy to set up and don’t require a lot of management. For that reason, this is one of the best passive income ideas.
- Restaurant Franchise: Consider opening up a branch of your favorite eatery. While the hospitality industry is tough, cafes and related franchises turn a profit.
Frequently Asked Questions
Can a Small Business Owner Start a Franchise?
Yes, with the right paperwork and funds, a small business administration can franchise.
The process may take a long time, but it should help grow the company and increase revenue.
What Is the Best Franchise to Own?
The answer to that question depends on your preferences and budget.
Fast-food chains like Dunkin’ and Taco Bell tend to have the highest profit margins.
Similar Businesses to Consider Starting
If you’re still unsure about starting a franchise, check out these similar businesses.
- How to Start a Jewelry Business: Jewelry firms are easier to start up than franchises. Although their profits aren’t as consistent.
- How to Start a Real Estate Business: Real estate can be more profitable than franchising. However, running the company will require a lot more work and time.
- How to Start a Car Rental Business: Renting cars is a hassle-free side gig with impressive profits. Plus, rental agencies are easier to run than franchises.
Figuring out how to start a franchise business can be a bit tricky. Luckily, our guide should help answer most of your questions.
Franchises are typically simpler to set up than a start-up business. That means you’ll be able to open up your doors in no time.
However, the process tends to be much more expensive.
On top of that, you’ll have to follow strict operational guidelines.
Did our guide help you decide if franchise businesses are the right fit for you?
Let us know in the comments and don’t forget to share this article.