Buying A Franchise

Buying A Franchise

The Seven Step Process to Own a Franchise

If you’re reading this, you probably want to be your own boss. And you are considering buying a franchise. Good choice. But there are many points to consider. Many people think that to own a franchise, you just search for a list of franchises, find out how much they cost, and decide which one to buy.

In reality, a franchise is “awarded” by the company (the Franchisor), to the buyer (the Franchisee). There is an application to submit, due diligence on both sides, criteria to fulfill, and more. You are creating a business relationship – often for 10 years – and this is not to be taken lightly. Typically, there are seven steps to franchise ownership.

1. Find a Franchise Concept that Fits

2. Submit Request for Consideration/Application

3. The Franchise Disclosure Document

4. Training and Support Overview

5. Franchise Disclosure Review

6. Franchise Due Diligence

7. Celebration or Discovery Day

Step 1: Find a Franchise Concept that Fits

First, you need to see a list of franchises to explore available concepts and opportunities. There are more than 1,100 franchise businesses currently registered with the International Franchise Association. Many healthy, growing franchises are listed at Franchises For Sale.com.

How will you know which one is right for you? Besides cost and location, you also need to know a few things about yourself, what you like to do and what financial and human resources you have available. See the article, “Narrowing Your List of Franchises” for more helpful information. You can also use the Search for Franchises tool to the left of this article to find out more about different industries and the types of businesses, or franchise concepts, available.

Step 2: Submit Request for Consideration/Application

To get started, choose two to three industry categories, such as casual dining franchise, automotive franchise, cleaning franchise, healthcare or senior care franchise. Within each category, choose one to three concepts or companies from which to request information. If you're using the FranchisesForSale.com search tool, use the "contact me" button to request information.

If you still don't see what you like, go back to the categories again and choose some more. This way, you won't be inundated all at once with information, 90% of which does not appeal to you. The companies will receive your requests immediately. They will match you with a representative, and you should receive information back from them in a week by e-mail and/or telephone.

Step 3: The Franchise Disclosure Document (aka: the legal stuff)

Now it gets fun. Now you get to explore in detail the industry, the company, its business model, the role of the Franchisor and the role of the Franchisee. The Franchisor will provide all of this in their Franchise Disclosure Document (FDD).

This document, required by the Federal Trade Commission (FTC), helps you understand the franchise model, fees, and commitments in the Franchise Agreement. (The Franchise Agreement is in Step 7.) The FDD is the legal document that defines the relationship between the Franchisee and the Franchisor.

The FDD can be over 200 pages long. Don't be afraid; but do read it. Start with the sections that interest you. That may be the fees, restrictions, training, advertising, hours of operation, etc. You'll want to know what your obligation will be, and what the franchisor will and will not provide.

Step 4: Training and Support Overview

One of the major benefits of being a franchisee business owner is that someone else has done the ground work for you. They have created the concept, researched the market, developed the product and service offerings, and are willing to share their trade secrets, marketing and training programs with you. For a fee.

The Franchisor should provide you with a detailed outline of the kind of support, both operational and marketing, and training you can expect. They may provide onsite training at your location, or you may have to travel to them for it. Some have detailed advertising and marketing support, some provide only online and phone support. Know what you are comfortable with and how much support you think you will need.

Step 5: Franchise Disclosure Review

We are about to get down to business. You will have an in-depth conversation or interview with your Franchisor Representative (from Step 2). Together you will review the FDD and discuss available territory. This is your opportunity to go through the FDD section by section and ask any questions that may have come up in the process of exploring the franchise business opportunity.

Step 6: Franchise Due Diligence

At this point, you should have a detailed understanding of the Franchisor, their industry, marketing, operations and support for franchisees. But don’t make any hasty decisions. At Franchisecompany.com, we recommend you speak to someone at the corporate office of each franchise you are considering. In addition, you may want to contact several franchisees from each.

Keep in mind that while you are evaluating how a particular franchise concept fits your needs, the Franchisor is comparing you to their “ideal candidate” profile. Preparing helps. Use the franchise interview questions to help you get an edge on being selected as a candidate for the franchise award.

Step 7: Celebration or Discovery Day

Congratulations! If all goes well, this is the final step in the mutual evaluation process before being awarded the franchise business. This is the day you sign the Franchise Agreement and meet department heads and key executives who will work closely with you as a franchisee. Now you’re in business – you own a franchise!

Get started

Why Own A Franchise

Owning A Franchise

Maybe you love food and always wanted to own a restaurant. Or maybe you want to work from home so you think a franchise would allow you to do that. Or maybe you’re tired of working for someone else and you’re ready to be your own boss. Those are all great reasons to want to own a franchise. But those are just the icing on the cake.

The real reasons to own a franchise are as follows:

1. A proven system
2. Write your own paycheck
3. True retirement planning

A Proven System

Owning a franchise is more than owning a business. Many people own businesses, but they are required to be there every day to make money. They cannot enjoy some of the benefits of business ownership as they are the business.

When you own your own business or you have a J-O-B, you are paid for doing work. When you own a franchise, you earn income following a proven system. Franchises succeed because someone has already done the labor to develop the product or service, the brand identity, and the marketing and distribution plans.

As a franchisee, you are a systems implementer, not an employee of the business. This is the difference between being a hairstylist or owning a salon that operates and generates income whether or not you personally are cutting hair. The true benefits of owning a business come when systems are in place so the business can run with or without you.

Write Your Own Paycheck

When you own a successful business that operates with a proven system, you decide how much money you want to make. If you want to make more money, you can open more units or increase the inputs in your existing system to increase the output. For example, if you own a mobile van business or a retail store, you can choose to add more mobile vans on the road or open more retail units.

True Retirement Planning

For most people, retirement planning means working hard and putting money away in a 401K, an IRA, or some other retirement plan. Then you rely on someone else to manage your money, and you hope for good returns.

When you own a franchise, you build your income as you build your business, and you also grow your personal net worth. The day will come when you want to get out of the business. At that time, you can sell your income generating assets, either for a fixed dollar amount or for monthly payments, so you can retire.

If you want a nest egg, give your money away to someone else to manage. If you want a bigger nest egg, use your own capital and management abilities to create and grow a greater future net worth.

Now it should be clear why you would want to own a franchise: the benefit of systems; unlimited financial opportunity; and the ability to secure your future. Franchise ownership is the number one way non-business owners succeed in business, and why so many successful business people pursue multiple franchises and multiple units to truly control their financial future.

There are more than 1,000 companies that offer franchise business opportunities. To begin searching for the one that is right for you, see the article on “Narrowing Your List of Franchises,”or use the FranchisesForSale.com search tool on the left.

Financing A Franchise

Creative Franchise Financing in Credit Challenging Times

We can all agree in that in 2009 the landscape has changed in the credit world. Today the typical business loan requires more ingredients for approval such as: more capital from the franchisee, more collateral committed from the franchisee, a higher credit score for approval, and more steps to complete a business loan application.

In the midst of tough economic conditions, business start-ups are obtaining financing in a variety of creative ways. Aside from obvious sources of financing, such as accessing a personal savings account, entrepreneurs are using unique funding sources to achieve the dream of owning their very own business. Here are just a few:

1. Love Money - The Number 1 source of funding used (outside of one’s own personal savings) is that of friends and family. In these situations, the team at FranchisesForSale.com always recommends that the franchise owner document the loan, agree on re-payment terms with a reasonable interest rate, and set the clear expectations up front about risk in event that the business growth does not go as planned.

2. 401k – Many franchise owners have used their 401k to finance businesses. They believe that their money can be better managed by themselves, the business owner, than by money managers in distant cities like…New York. With one of many financial experts in the market, the process of utilizing a 401k as business funding can be done easily in less than 90 days.

3. Leasing – When considering the total start up budget of a new business, look at what items can be leased instead of purchased. If the total capital expenditure needed to begin the business is reduced then one will significantly increase the available monthly operating budget instead of using that money to satisfy a bank note.

4. Landlords – The recession has also impacted commercial landlords. Commercial office or retail space is in great supply and in low demand. Landlords can typically offer about one year’s rent upfront in cash to a tenant in exchange for signing a long term lease. The longer the lease, the stronger the brand and guaranty, the larger the up-front cash payment the landlord can offer.

5. Vendors – For some businesses, the vendors are so eager for additional points of distribution that they have funding available to contribute to the opening costs of a new business. In addition vendors typically can offer generous lines of credit to finance initial inventory costs and to help reduce the needed capital in start up phase.

6. Customers – Have you ever heard of customers pre-paying for services in exchange for a discount? Making a new sale can be a great source of interest-free financing for your business. New sales help to enhance cash flow at the start of the business and also reduce the necessary working capital.

A Real Example

A business costs $200,000 to open and the owner has $50,000 in savings and is seeking a $150,000 additional financing.

Can It Be Done?

Yes, It Can!

• $60,000 LEASE: The owner leases $60,000 worth of equipment required for the business

• $60,000 LANDLORD: The owner negotiates an allowance from the Landlord in addition to free rent for 90 days

• $20,000 VENDOR: The company vendor contributes.to the opening of the business

• $10,000 CUSTOMER: This is generated from new customer sales in his first month of business in the form of prepayment of services

This equates to a total of $150,000 in alternative financing.

By taking the time to commit and focus on the types of business financing available, these efforts will enable the business owner to not only launch the business, but offer the business an opportunity to excel with a stronger financial position.

Franchise Research Tips

Trusted Sources For Researching The Right Franchise

Where do you find the most trusted information regarding franchising? This is a tough question to answer because there is not one specific place on the Internet that you can guarantee the information is 100% accurate or reliable.

When researching a franchise you must do your homework. This means that in addition to reading all the marketing documentation provided by the Franchise Brand, reading the Franchise Disclosure Document (FDD) provided, and reviewing in detail all the exhibits to the FDD, you must do more.

“Like what?” you ask. Here are some examples:

1. Contact at least 10 existing Franchisees and ask the questions that are important to you. For example, your questions might be:

• Did the Franchisor provide you the training that was promised and was it sufficient enough for you to run the franchise?
• Was the cost estimate for your start-up in the budget you expected?
• Has the marketing plan provided delivered the results you expected?
• Knowing what you know today, would you purchase the franchise?

2. Search the Internet and franchise blogs to find comments about the franchise and collect feedback about the franchise’s operation. You may search for customer reviews about the franchise as well. Do not expect to view all positive comments regarding the franchise, but do be alarmed if you only find negative comments about the consumer experience.

3. Contact competitors to the franchise you are seeking to purchase and see what they say about the brand you are interested buying.

4. Spend time (a minimum one day or more) shadowing a Franchisee to view a-day-in-the-life. Make absolutely sure you will enjoy working in your new career.

These recommendations should help:

• Ensure that you are engaging in a quality long-term relationship with the Brand.

• To avoid being surprised after you ‘join the family’ so to speak.

• In making your final decision to move forward with purchasing a franchise.

This content is sponsored by Franchises For Sale, a team of successful franchise development professionals that have created the first content driven website that focuses on the franchise award process.