Steps to Buy a Franchise: An Ultimate Guide to Opening a Franchise

steps to buy a franchise

Opening a franchise can be an overwhelming step for beginners. As intimidating as setting up a franchise sounds, there are certain factors that every newcomer should be aware of. This easy guide will help you get a comprehensive idea of steps that you should consider when starting a franchise.

The following infographic provides you a detailed overview of the key steps involved in opening a franchise. Keep in mind that the investment process and timelines may vary from company to company.

fundamental steps to open a franchise
  1. 1. Self-assessment

    The first and foremost step is to self-consider your plans to open a franchise. When doing so, ask yourself the following questions:

    • Why do you want to open a franchise? What is the motivation?
    • Willing to put in the needed hard work and sacrifice the weekends?
    • Do you accept the business model of the franchise and are willing to work according to it?
    • Do you agree to pay a percentage of your profits to the franchisor?
    • Do you understand that your franchise is seen as a part of another business entity? Do you agree with the idea?
    • How much do you want to invest in the setup?
    • If required, will you be able to get a loan in the future?

    Answering all of these questions before taking any decision is important because opening a franchise calls for complete dedication.

  2. 2. Choose A Franchise Consultant

    Though you can find an abundance of information about franchising online, consulting, and working with a franchise consultant is always a good idea. A legit franchise consult has industry-based knowledge and expertise that can benefit your new business. Therefore, always pick a consultant that aligns with your personality, skills, and business goals.

    Moreover, consider the following questions before choosing a franchise consultant.

    • What are your competitive strengths and weaknesses as an entrepreneur?
    • What type of business or industry do you want to own?
    • What are your business objectives and how can a franchise consultant help you to accomplish them?

    A franchise consultant will help in accelerating the whole process and making it easier for you to take the decision.

  3. 3. Do The Initial Research

    The next important step is to do your initial research to learn more about what is franchising in general. It may include the key points regarding how it works, what to expect, and how to choose from the already available options.

    Also, identify the crucial factors given below to understand the market conditions:

    • What types of businesses are suitable for your area?
    • Does it really fit your goals?
    • What is going to be the total cost of the franchise?
    • What are the internal policies and regulations of the chosen franchise?

    To dig deeper into the present and future potential of a franchise, use the statistics and relevant data given on the state databases and use them as a decision making factor. This data will help you evaluate your situation as a potential franchise owner and the corporate scenario of your targeted business area. Many successful businessmen pledge to listen to their gut feeling also. After conducting thorough research work and choosing the ones that match your situation, request the franchise application from them. After evaluating your application, if the franchise decides to work with you, they will mail you their copy of the franchise disclosure document. Once you get the documents, read them thoroughly to know more about the business, and understand its terms and regulations.

    After conducting thorough research work and choosing the ones that match your situation, request the franchise application from them. After evaluating your application, if the franchise decides to work with you, they will mail you their copy of the franchise disclosure document. Once you get the documents, read it thoroughly to know more about the business, and understand its terms and regulations.

  4. 4. Attend A Discovery Day

    A discovery day is a formal meeting between the franchisor and the selected franchisees, there could be one or more potential franchise owners. Though the franchise could choose any place to hold the meeting, most probably, you will be invited to attend the meeting at their corporate office.

    This is the opportunity to learn more about the franchise’s corporate culture, values, strategies, and the people you will be working with. Likewise, as a prospective business partner, the franchisor will also have the chance to get to know you better and size you up, so you need to be prepared for the discovery day. Similarly, the franchisor also decides whether or not they want to work with you.

    A typical schedule for a discovery day includes group presentations, one-on-one meetings, and surveys to existing franchises. Thus, make sure to make the most of this day as the franchisors would normally expect you to make a decision soon after this event.

  5. 5. Communicate With Other Franchisees

    There is a directory of all existing franchisees within the FDD issued by the franchisor. Find the ones near you, and meet them in person. When trying to understand the business conditions, keep the below factors in mind:

    • Are they satisfied with financial support?
    • Is the market situation in line with prior expectations (financially and otherwise)?

    In case you find any discrepancies in what the franchisor has communicated with you and the reality, it is better to reconsider your decision.

  6. 6. Choose A Suitable Franchise Location

    The next step is to choose a suitable location for opening your franchise. The franchisor typically provides certain guidelines and suggestions to assist you in finding an ideal location, solely based on the business analysis.

    Most franchisors have strict criteria when it comes to a commercial real estate site that includes the minimum square footage and a number of necessary parking slots. On the other hand, some franchisors have some territory requirements.

    For instance, a restaurant may have to be within a specific distance. In many cases, the franchisor will have to approve your site before you can move forward.

  7. 7. Choose A Reliable Franchise To Secure Funding

    Once you have followed all the necessary steps, it is time to decide an important part of the franchise owning process. What kind of franchise do you want to have? Typically, there are two kinds of franchises, one that sells products or services on behalf of the franchise, and the other is the business format franchise.

    Once you are done choosing the type of franchise, it is time to consider the financing options.

    You can consider the following financing options:

    • Bank loans
    • SBA (Small Business Administration) loans
    • HELOC (home equity line of credit)
    • A franchisor will need to have enough personal cash to cover the franchise expenses until the franchise begins making a profit, which could be anywhere between 6 months to a year.

  8. 8. Sign The Franchise Agreement

    A franchise agreement is a binding contract between you and your franchisor. You must hire an attorney to review the agreement before you sign it. Also, make sure to understand the exact terms of the contract including all the rights and obligations.

    Some franchisors are rigid while others are flexible about negotiating the terms in the agreement. Since the franchises are based on a consistent structure, they may not be very open to changes. However, if they are overly ‘open to change’ then you must check everything to avoid any future issues.

  9. 9. Obtain The Obligatory Licenses And Insurance

    Based on your industry, there could be different kinds of permits and licenses that you will need to obtain before starting with the franchise. Though the franchisor would likely have prior knowledge of the licenses, permits, and insurance that are needed to run their business operation, checking with local official bodies will be a sensible decision.

    The Small Business Administration and FindLaw are two useful resources to use as a guide to what licenses and insurance may be necessary for the U.S. companies.

  10. 10. Hiring Workforce and Attend Training

    ‘How much staff will I need to operate my franchise?’ The number of staff members needed to carry out the business operation depends on the type of chosen franchise. The training factor is one of the most important factors of franchising and is crucial for those wanting to start a franchise.

    The franchisors offer both theoretical and practical training to the franchisee and the manager who will be managing and running the business. You will get the franchise operations manual during the training.

  11. 11. Open Your Franchise

    Finally, it is time to open your franchise to potential customers as a new marketplace option. This is another key aspect where buying a franchise provides benefits from scratch. Your franchisor will provide a detailed guideline regarding the process of starting up your company and launch an ads campaign. In total, the costs for these activities will be part of the start-up costs listed in the FDD.

    Before the 'grand opening,' most franchisors would like to do a ‘soft launch’ to see the reception and how people have perceived it. Moreover, to avoid any unlikely situation, some of the franchisors arrange a corporate trainer to assist others at the franchise site on the opening days.