How to Own a Franchise: Simple Guide

ByVladana Donevski
May 10,2022

If you want to own a business but don’t want to start from scratch and build a brand, buying a franchise is a great way to simplify the process and generate profits in the increasingly competitive world of commerce.

In this guide, we’ll walk you through 10 steps on how to own a franchise. In addition to detailing the process of investing in this business model, the following information will help you identify the right opportunities and the ideal franchises for sale.

Why Purchase a Franchise

Before you can start thinking about owning a franchise business, you need to make sure you’ve chosen the right path. Evaluating the pros and cons is the only way to make a calculated decision.

When you purchase a franchise, you’ll have to get used to a limited degree of creative control. So, if you’re hoping to develop products or add your own unique touches to an existing brand, you should probably steer clear of franchising. Franchise opportunities are spread out across a diverse group of sectors, including food and retail brands. That said, entrepreneurs looking for eCommerce opportunities may find affiliate schemes or Etsy stores more accommodating options.

Of course, the range of possibilities with franchises is endless. Here are a few key findings about the state of franchising and its impact on the economy:

  • Over 10.5% of all U.S. businesses are franchises. 
  • Franchises create an average of up to 14 jobs, and a new one is launched every 8 minutes during any given business day.
  • There are over 780,000 franchises in the US alone.
  • The franchise industry reportedly accounts for around 50% of all retail revenue in the US.
  • Some sources claim that franchises have a success rate of 90%. Even if that figure is slightly exaggerated, it easily outperforms startup ratios.

Franchise opportunities allow you to start doing business right off the bat because the branding side is already taken care of. While you’ll need to work within the existing framework of the established company, you’re mitigating the risk of failure because you’re inheriting a system and brand that have already proven themselves on the market.

How to Own a Franchise: Buying a Franchise in 10 Steps

If you’ve decided that owning a franchise is the right business move, stick to our step by step franchise guide, which will point you in the right direction while answering a few key questions:

  • How much does it cost to own a franchise?
  • What are the best franchises to own?
  • How will I know if the franchise opportunity is right for me?
  • What are the requirements for owning a franchise? 
  • How do I make my franchise a success?

One of the main benefits of buying a franchise is that you can focus on the management aspect without wasting time on the planning and concept stages. Follow these 10 simple steps, and you’ll be ready to run your franchise in style.

1. Find the Best Franchise 

First and foremost, you need to determine which franchise is right for you. Food franchises are the most common, but almost 300 industries offer franchise opportunities of some kind. Moreover, there are plenty of websites and trade events where you can find franchises for sale.

Assuming you do go for a food outlet, some of the most popular options include a McDonald’s franchise, a Dunkin’ Donuts franchise, a Krispy Kreme franchise, or a Chick-fil-A franchise. Still, it’s important to conduct in-depth research to find the best franchise opportunities on the market. Be sure to consider the following:

  • Costs: Knowing how much money you need to own a McDonald's franchise, for example, is critical when weighing your options. An existing McDonald’s franchise can cost upwards of $2 million
  • Opportunities: There are plenty of franchise opportunities, but the key is to pick the one that best matches your skills and budget. Also, make sure you do your homework on the competition and learn about their proximity to your locations.
  • Familiarity: You don’t have to work on a franchise you know and love, but it certainly helps. Passion and knowledge are important during those difficult early stages.
  • Reputation: The company’s track record on social responsibility and its ability to provide quality products and services will affect your reputation. 

There are other factors to consider, such as whether you plan to maintain a job alongside the franchise until launch or whether you’re partnering up with other owners. 

2. Apply 

When you’re done with your research and you’ve found the franchise that is the right fit for you, the company will want to make sure that you’re a good fit for them. Good networking skills and the ability to work collaboratively are useful qualities in these situations, which may explain why franchising is becoming increasingly popular among women entrepreneurs.   

You’ll also need to go over the Franchise Disclosure Documents or FDDs. The documents outline your responsibilities, the relevant fees, and the rules and regulations you’ll need to adhere to. The franchisors are legally obligated to provide you with this 50+ page document before any contracts are signed. The FDDs typically include the following:

  • The brand presence in your state and a three-year growth projection,
  • The investment fees and ongoing costs 
  • The support that will be offered to the franchisee

Some franchisors may not offer business performance details and information on losses or unit closures. But you can always turn to third parties and the company’s public filings for more info.

3. Attend a Discovery Day

Discovery days are an important feature that gives franchisors and franchisees an opportunity to connect and learn more about each other. It is, therefore, considered a key step towards setting the foundation for a long and successful working relationship. It’s a chance for prospective business owners to seek clarity to any questions they may have.

Before this event, you should have already completed the necessary research by reading the International Franchise Association guidelines. As a franchisee, you can expect a discovery day to include:

  • A combination of group presentations, one-on-one meetings, and interviews
  • Visits to existing franchise locations
  • The opportunity to meet important people who will guide you to success

It should be noted that some franchisors only handle the discovery day via digital channels due to the pandemic. 

4. Fund the Venture

Studies show that the costs of owning a franchise are around $250,000 for more than half of all franchise opportunities. Many prospective franchise owners will struggle to find that much capital. Thankfully, there is a range of funding options available.

Of course, you can make life a little easier by finding the cheapest franchises to start things off or by seeking external funding. Experts suggest liquid capital should account for around 30% of the total costs. Here are a few avenues to explore:

  • Securing bank loans with bad credit isn’t impossible. Still, qualifying for a franchise loan when you have poor credit history will add a few steps to the process.SBA loans are a popular option among prospective franchisees.
  • A Rollover for Business Startups or a ROBS agreement that leverages success from your 401K retirement account. 
  • Private investments from friends and family, which could include crowdfunding; however, it should be noted that you are unlikely to gain investments from strangers for a franchise.
  • Consider a partnership with another prospective franchise manager. While it does reduce your potential financial exposure, it does add some complexities. It also means you need to split the profits.

The harsh reality is that you cannot own a franchise with no money. Once you’ve researched how much buying a franchise will cost and approached lenders with a business plan, you have a fair shot at success.

5. Invest in Yourself

Studies show that almost half of all franchise owners have a bachelor’s degree. This should come as no surprise, not least because the biggest organizations want every franchise to represent the company in style. Therefore, it’s vital that you understand the qualification requirements.

Your franchisor will typically run a host of training services for you and your team. This is to ensure that you continue to manage the company within the framework of the parent company to ensure consistency with other franchises across the nation. Additional forms of self-investment that you may wish to consider are:

  • Advanced research into the history of the company,
  • Body language and communication courses,
  • Your personal grooming to make appearances count,
  • Developing a positive mindset and self-confidence.

You are only one cog in the machine, but you must not forget that you set the tone. When you lead by example, it will filter down throughout the business to deliver stunning results.

6. Register Your Business

By now, you may have already registered the company. If not, you will need to do so quickly so that you can commence with business operations. The franchise must still be incorporated like any other business, which means providing your Employer Identification Number and other details. 

One of the biggest dilemmas revolves around finding the right type of structure for your company. 

  • An LLC keeps your business as a separate entity, which reduces your liability and eliminates other legal requirements, especially when compared to corporations.
  • An S-corp tax election offers tax advantages but reduces your flexibility. 

In most cases, an LLC is the way to go. Bear in mind that you’ll also need to open a separate bank account to keep your franchise finances separate from your personal ones.

7. Find the Ideal Location

Location is one of the most important aspects when running a franchise, especially when we’re talking about food and retail brands. Finding a commercial unit that’s affordable and easily accessible to consumers is vital. Here, it’s important to think about money and your investment capabilities.

Leasing is likely to be the best option for your franchise business, although a commercial real estate loan may enable you to purchase property. While the right location is the priority, you must also consider:

  • The square footage of the internal areas and whether major structural updates or refits are required
  • Accessibility to the front door and the parking lot
  • Safety for all the areas as well as employees and guests
  • Monthly rental costs and the minimum contract duration

As well as finding the right location, you’ll need to design the layout of your franchise or store. The good news is that everything from the furniture to the equipment and POS terminals can be provided by the franchisor.

8. Hire the Perfect Team

Always seek advice and guidance from senior franchise managers and the parent company. It’s equally important to employ the right people at your franchise store.

It’s likely that your franchise will be open for long hours, especially if you want to own a fast-food franchise. Employee engagement stats show that the current rate is just 34%. As such, finding the right workers and providing the tools to help them thrive can make a huge difference to your venture. For a fast-food restaurant, you’ll need to hire:

  • Chefs 
  • Waiters
  • Cleaners 
  • Admins
  • Supervisors

Assembling the best team is one of the most important challenges you’ll face. But succeeding in this will give you peace of mind and enable you to establish a better work-life balance.

9. Prepare Your Marketing Tools

One of the great things about franchising is that your franchisor will already have logos, slogans, color schemes, posters, and deals in place. Moreover, they may provide you with a template website for the local franchise. Franchising stats show that seven of the top 10 franchises are in the food industry. If you’re in the same sector, marketing items can also cover menus and images of food items.

Over four in every five franchises focus on regional audiences. Every marketing plan should be geared towards conversions and revenue. Some of the key features to remember are:

  • Local SEO, social media marketing, and content marketing
  • Affiliate marketing and the power of recommendation
  • Flyering and using posters in prominent areas

Perhaps most importantly, you need your shop signage to stand out. Again, this is something that giants like McDonald’s and Dunkin’ Donuts will help with. 

10. Open and Operate

Once you’ve completed the steps above, you should be ready to launch the franchise. Your franchisor will provide the promotional tools for you to organize an opening event at the right time. Of course, seeking local press coverage can make all the difference.

As long as you follow the successful launch with consistent quality in daily operations while keeping one eye on future opportunities, your franchise will have every chance of success. 

Final Word 

Our guide on buying a franchise and the 10 steps we’ve outlined should give you a far better understanding of whether this is the right move for your career. The potential profits are impressive, but only if you have the right skills and can find the passion for essentially running an established branch for a parent company.

The fact that over 780,000 business owners are thriving through this model underlines its potential. And amid the current economic turmoil on the global stage, there has never been a better time to explore this lucrative option.

Frequently Asked Questions
Is owning a franchise profitable?

Owning a franchise business can be very profitable. In fact, some reports suggest that up to 90% of U.S. franchises are successful. They cumulatively contribute around $1.6 trillion to the economy. The exact earnings can vary based on various factors, including the industry. 

How much money do you need to own a franchise?

Research shows that the average franchise requires an initial outlay of $250,000, while it’s likely that you’ll need to pay a commission on your store’s profits. However, there are several affordable franchise opportunities that can cost under $10k to launch, as well as many others that sit in between the budget-friendly options and the industry averages.

Can anyone own a franchise?

Technically speaking, anyone can apply to open a franchise, but it should be noted that the national and global giants will only let suitable candidates represent their brands. During the application phase, you can expect to have your credit score, net worth, industry experience, and management experience reviewed. It’s also worth noting that most franchise owners have a bachelor's degree.

How do I start a franchise with no money?

This guide on how to own a franchise highlights the importance of financing. In short, you will need money to purchase a franchise, but it doesn’t have to be yours. Bank loans, private investments, and SBA grants are just some of the options that may be available in your state. Research is key.

How much do Chick-fil-A owners make?

While many of the biggest franchises do not publicize how much their store owners make, it is reported that the average Chick-fil-A franchise owner can expect to make $200,000 per year. However, this figure is only possible if you find the right location, choose a winning team, and operate the company in a way that maintains standards and impresses guests.

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