Franchising Guide for Entrepreneurs
Researching Franchising Opportunities and Choosing the Right One for You
Truly successful franchisees choose the franchise that suits their personal goals perfectly. Do you want a franchise that has a large amount of corporate interaction? Or would you prefer a franchise that allows for a great deal of autonomy? What industry would you like to work in? Do you imagine yourself owning a restaurant? How about offering a service? Do you have a history in a specific field? These are many questions you will have to consider, and there are many more.
How to Research the Right Franchising Opportunity for You.
The Internet is your Friend
There is a bounty of blogs one google search away from connecting you a network of potential franchisees; however, these opinions may often be unregulated or biased. Instead, start your search with the better business bureau.
Prepare a list of franchises that fit your general interests. Now, search these companies on The Better Business Bureau. Review the comments left on this corporations. Have franchisees enjoyed their experience? Or was there an abundance of negative feedback?
Take note of the franchises that passed this initial scan, now discard the others.
Participate as a Customer
Let us pretend that you have narrowed your search to ten franchises across three industries: food service, labor service, hospitality.
When was the last time you stayed at a Holiday Inn? Maybe take a weekend trip, notice the ins and outs of the business. Do you view yourself entering this industry? Will you have the startup capital available for a business with high overhead? Do the employees look happy? Take physical notes, and move on to each of the destinations on your list.
Do your Paperwork
Prepare multiple binders. Label them with your remaining franchise options. Calculate the start-up funds that would be necessary to purchase each of these franchises and get them operating a business. This may require visiting each of the franchises corporate websites and learning the franchise cost. Once again, the internet is your friend.
Do you have the start-up funds available? Will you need a partner? These are not answers that you will immediately need, but they are questions you must immediately ask. Take note of the individual responses you give and place a bullet list in the front of each binder. You will be checking off your needs as you continue the narrowing process.
Attend a Franchise Fair
As mentioned earlier, attending a franchise fair is one of the wisest decisions to make early in this process. This will give you the opportunity to not only mingle with the corporations you are interested in franchising with but actual franchisees themselves. This is an opportunity for you to answer the questions you have raised in your early investigation. It will also give you the opportunity to meet a suite of potential franchise partners should you choose to find yourself in the need of one.
Compare and Contrast
Now that you have an ample arsenal of information at your disposal, you will be able to compare and contrast each company through the well organized binder system you have designed for each of your potential franchises. This will place you in the best position to make the wisest decision for the future of your business.
Differences Between Starting a Franchise and Starting your own Business
When beginning a business, you must decide between starting from scratch with your own personal vision and buying a franchise. So let’s break down the differences between the two.
Franchise vs. Corporation.
This title is intentionally misleading. In truth, these two are not natural rivals. In fact, if so desired, a corporation and a franchise may be one in the same. Allow me to explain:
A corporation is an entity owned by two or more partners that exist as a unique, legal entity. A corporation may, in fact, purchase a franchise. A franchise may also be purchased by a limited liability company (LLC) or a sole proprietorship. See, a franchise is not a business structure at all, but rather, a local representation of a much larger company.
When one purchases a franchise, you are buying intellectual property. In exchange for the purchase price, the owner(s) may use the company’s likeness, recipes, uniforms, name, etc.
It is for this reason that many hotels, coffee shops, and chain restaurants are owned as franchises.
When you purchase a franchise, you purchase the right to operate business as a member of an existing brand. When you start your own business, the branding, products, and services are your personally crafted intellectual property.
Deciding if a Franchise is Right for You.
Ultimately, one must question if purchasing a franchise is the right choice for the future of their business. Certainly, there are benefits. If you are seeking to be the most profitable coffee shop in an area that does not yet have a Starbucks, purchasing a franchise would be a wise investment of funds.
If you are seeking to open a coffee shop that host exotic coffee beans from around the world, doubles as a used bookstore, and hosts open mic night on Fridays, then you probably would benefit more from the freedom of your own intellectual property.
Brand recognition will generate instant traffic, but owning your own brand offers creative freedom.
Top 10 Franchises that are Thriving in Florida
There are many franchises that are available for purchase in Florida. Below you will find the top ten most thriving franchises in the sunshine state, and an estimate of the initial investment required to launch your own.
10. Re/Max LLC
Real Estate Maximums has dominated market share since 1999. Using a unique franchise based real estate model, Re/Max has over 100,000 agents nationwide.
Min. Initial Investment: $38K
9. Sport Clips
Sport Clips is a male driven hair-cuttery and salon. The company thrives on hyper-masculinity: hiring only female stylists, only offering “male” themed programming such as sports, and complementing every “MVP” haircut with a massage. Though relatively young compared to other salon franchises, Sport Clips has quickly surpassed all of its rivals
Min. Initial Investment: $189K
8. Wingstop Restaurants Inc.
In Florida, Wingstop may be best known for celebrity franchise owner Rick Ross. Despite misconception, Ross owns many franchises, but not the company itself. Ross, an early investor, was right about the product. Making Wingstop the most successful Wing franchise in the state.
Min. Initial Investment: 303K
7. Ace Hardware Corp.
Ace Hardware has a long history in the United States. Founded in 1924, and rebranded only 7 years later to Ace Hardware Corp. The demand for manufacturing during World War II launched Ace into a national corporation, and today it is the most successful hardware franchise in Florida.
Min. Initial Investment: 273K
6. Dairy Queen (DQ)
Founded in 1940, DQ offered a variety of frozen products, not just ice cream. Today, it has become famous for soft serve and is the most profitable ice-cream franchise in Florida.
Min. Initial Investment: 361K
5. Jimmy John’s Gourmet Sandwiches
Best known for guaranteed quick delivery, Jimmy John’s sandwiches has become a rapidly growing brand. So much so that of all Floridian fast food franchises, Jimmy John’s is only second to a certain red-haired clown.
Min. Initial Investment: 326K
4. The UPS Store (United Parcel Service)
Many consider the UPS Store to be the most reliable of the shipping options, higher rated than even the US government’s USPS. Naturally, the nation’s preferred shipping option is Florida’s most successful shipping franchise.
Min. Initial Investment: 159K
3. Dunkin Donuts (DnD)
America truly does run on Dunkin. Founded in Massachusetts in 1950, DnD has grown to be a household name. Unsurprisingly, it leads all coffee franchises in the state of Florida.
Min. Initial Investment: 229K
McDonald’s is the most expensive investment on this list, but it is obvious why. The fast food giant has become the international leader in quickly made burgers. The signature M is instantly recognizable just about anywhere you travel in the world, and it is guaranteed to bring you immediate traffic.
Min. Initial Investment: $1M
7Eleven has become such a sensation in Florida that children of the Sunshine State celebrate July 11, as a holiday to look forward to. Offering a wide arrange of franchise purchasing options, including special programs for Veterans, 7Eleven is one of the most owner friendly franchises to buy into. And they top our list of Franchises that are Thriving in Florida.
Min. Initial Investment: 37K
What Are the Costs of Owning a Franchise
Franchising is an incredible opportunity to invest your capital; however, be aware that it takes a large sum of investment capital to get your franchise off of the ground, and many funds above and beyond that as the year progresses.
To make sure you are ready to own a franchise, consider the following costs as you make your financial preparations.
Buying a Franchise
As you may have noticed in the previous chapter, investment capital necessary to purchase a franchise varies depending on the company and the industry. Simply purchasing a franchise - the rights to use a larger company’s brand - can range anywhere from $36K (i.e. UPS) through $2.2M (i.e. McDonald’s).
These costs are referred to as the Franchise Fee. Franchise Fee’s are pretty standard across industries, lasting for an average of twenty years. This means that your $36K allows you to use the UPS brand for 20 years. If you have been profitable, the company will want to renew your contract, which means, you must once again pay UPS the $36K franchise fee.
In addition to the franchise fee, many franchises charge a yearly royalties fee. Which, on average, results in the owner paying the franchise 12.5% of annual income.
So you’ve decided to purchase a franchise. Great! But where will this business operate? In addition to the franchise fee and royalties, you must consider the costs of commercial real estate. Property, construction, and materials for the average franchise restaurants range from $755K to $1M. These funds must be liquid and considered during the startup funds planning phase.
Once your franchise is up and running you must also consider the costs of operation of business. Because of the vast diversity from industry to industry, we will not go into detail here. But some of the yearly costs one must consider are: salary, stock, electricity, water, gas, insurance, miscellaneous allowance, and emergency funds.
Franchises are incredible opportunities to grow your financial portfolio. A single Mcdonald’s restaurant may generate multiple millions per year. However, the operation of a franchise is quite the expensive undertaking. Be prepared to have $1M in liquid assets if you desire to launch a franchise of your own, and be prepared to manage your money carefully and account for the many expenses in the operation of business.
How to Purchase Your First Franchise
Once you have acquired the necessary start-up capital and considered the expenses of business, you are ready to acquire your first franchise. But, how does one go about doing that?
Perhaps you already know exactly what brand you would like to work with. Opening your franchise then may be as simple as going to that company’s website and following the online application process. But if you are not sure where to start, here is a guide to purchasing your first franchise.
The tried and true first rule of business: “it isn’t what you know, but who you know.” Thankfully, when it comes to opening a franchise, it is quite easy to find yourself “in the know” with the appropriate people for your field.
Across the nation, there are a plethora of “franchise fairs.” These fairs are an opportunity for local franchisee’s, potential franchise owners, and brand representatives to exchange ideas, network, and seize investment opportunities.
The International Franchise Expo is widely considered to be the grandest of these such events and is worth the price of admission if you are serious about launching a franchise of your own.
If you are unable to network in person at a franchise fair, you are able to research plenty of information online. Take advantage of The Better Business Bureau. See which franchise’s have a number of complaints against them. Learn which franchises have good reputations. Understand who they are as a corporation before you agree to join their corporate machine.
Once you have gathered your financial assets, selected a potential location, and prepared a pitch for your franchise, contact the corporation that you met at the fair, or researched online, and express interest. Most applications can be found with a simple google search. If interest is mutual, you will be contacted and guided through the remainder of the process.
Franchise Territories and Multi-Unit Franchises
For those with the funds necessary to purchase multiple franchises have the ability to control the market within a certain “territory.” While this was an uncommon method for most of the history franchising, in recent times this “Multi-Unit” model has gained in popularity, and for good reason. Let’s explore why:
Territories refer to a certain mass of land where a franchise exists. Most corporations regulate the number of franchises within certain physical boundaries to prevent over-saturation of the market.
These territories vary depending on distance and popularity. While a “territory” in rural Mississippi may encompass an entire county, a territory in New York City might only encompass a multi-block area. Why? Because one Starbucks might be enough to service an entire small town, while one Starbucks is rarely enough to service one New York City block.
So, when one purchases Multi-Unit Franchises, the franchisee has the ability to purchase multiple Starbucks within the same territory. This allows for a massive growth in potential income. However, it also increases the workload for the franchisee, as well as greatly increases the liquid assets necessary for purchase and operation.
It is more common for corporations to purchase Multi-Unit franchises than single owners. This is due to the large amount of funds necessary to take on this task.
In addition, it is usually wiser for a group of individuals to embark upon this endeavor together due to the amount of work necessary to manage multiple locations successfully.
How to Prepare for Meeting with the Franchisor
So the day has finally come, you have gathered your funds, networked with corporations, selected a financial family to join, prepared your pitch, and now you are finally meeting with the franchisor at corporate headquarters.
This is quite the important day. You have done quite a great deal of work just to make it to this point, and you do not want to waste this opportunity. Here are some suggestions on how to prepare for meeting with the franchisor.
Discovery Day, as most franchisors refer to it, is the day that the franchisor invites you, the franchisee, to corporate headquarters for the first time. There are some major events you want to consider before attending Discovery Day.
Discovery Day will come early in the application process, so it is important you are well educated before even beginning the process. As discussed earlier, it is crucial to have both networked with multiple franchisees within the corporate structure you wish to join, and that you also have researched the corporation and have a thorough, conversational knowledge of the franchise structure.
Third, it is crucial that you receive and review the Franchise Disclosure Document (FDD) before your arrival. Most franchisors will send you this upon receiving your initial application; however, if you do not receive the FDD, do not hesitate to request one.
Finally, it is crucial for you to have specific expectations and goals in mind for this initial meeting. Yes, you want to impress the franchisor, but this is a two-way relationship. You, the franchisee, should seek to gain answers to any outstanding questions you have, you should seek to observe the franchisor and how she or he operates in negotiations, you should be thoroughly prepared to negotiate any open items in the franchising agreement, and you should seek to gain feedback on the franchisor’s opinion of your proposed business model.
To make the most of Discovery Day you must be well educated, well connected, and well versed in the details of your franchisors corporation.
Best Practices for Compliance with the Corporate Office
Throughout the application process it is crucial to comply with the corporate office if you hope to have a smooth acquisition of a franchise. Here are three simple practices that will help you have positive compliance with the corporate office.
Paperwork and Bookkeeping
A great business owner already understands the importance of keeping detailed books and properly managing paperwork. Throughout your franchise application process, the corporate office will be asking you about your business model, marketing schemes, location, finances, projected revenue, projected business costs, construction permits, and more.
It is crucial to be prompt with your responses to inquiries and to have thorough and clear documents to present to the corporate office. Proper documents not only accelerate the processing of paperwork, but it builds trust between the corporate office and you as a potential franchise owner. Your ability to properly keep books speaks volumes on your potential as a leader, and every corporation expects their franchises to be profitable. If they foresee the talent necessary to lead in your filing, the application process will be simplified because both parties see the mutual benefit.
Conversational Knowledge of Franchise Structure
The application process is much more than raising funds and filing paperwork. The application process also requires you, the owner, to show that you are a fit leader and a benefit to the corporation as a whole. Prove that you are knowledgeable of the process, the product, and the brand you are applying to represent.
It may sound simple, but this is a common error that many aspiring franchisees make. Simply complying with corporate office directives, terms, and due dates will simplify your process immensely.
It is a common mistake to miss due dates, to improperly follow corporate terms, and to fail to accept meetings at early and optimistic dates. Initiate contact, and follow terms. Simply remembering to comply will show your potential as a leader. You do not want the corporation to be wary of your responsibility so early in the potential partnership.
Finding a Business Partner for the Right Franchise Opportunity
As we discussed before, Franchises may be purchased by a multitude of business structures, this encourages cooperation between multiple business partners. So, what type of business partner are you looking for?
What do you need from your Business Partner?
This is the first question you must ask yourself in your search for a business partner. Are you looking for a financial partner or an operational partner?
Perhaps you have acquired a tremendous amount of business acumen, but you do not have the tremendous funds available to purchase a franchise. In this case, you would need a financial partner. This financial partner will fund your project in exchange for a percentage of the business.
On the other hand, you may be well endowed with funds but do not want to concern yourself with the everyday labor of operating your franchise. In this case, you would seek an operational partner. This operational partner will be the face of the franchise, in exchange for a percentage of your company.
Perhaps you want an equal partner that contributes to both the finances and the operation of the company. In this case, you will likely want to partner with an individual much like yourself, who is in the position to launch a business but would benefit from joining with another skilled franchisee.
Where to Find a Partner
Once you have decided which type of partner you are seeking for your franchise, you must find a suitor that meets your bill of needs. The most efficient way to find a partner is to attend a franchise fair or franchise expo.
These franchise fairs unite franchisees and corporations. This is your opportunity to find a partner who compliments the assets that you bring to your potential franchise. Much better than making endless phone calls or hoping to meet your business partner at the next local business mixer, attend an event specifically designed to bring together the exact group of people you need to meet.
Attend these events well prepared with your set of expectations for a partner. Be well educated on the corporation you are seeking to represent, and be knowledgeable in the franchise structure you seek. This will be your best opportunity to find a partner, be prepared to leave will multiple candidates in mind.
Franchising Agreements and Legal Obligations
When you choose to purchase a franchise, in reality, you are purchasing the ability to use the company’s brand for a specific period of time. This agreement between the franchisee and the franchisor is known as a Franchising Agreement.
What You Should Know about a Franchising Agreement.
The franchising agreement that you sign will always be for a finite period of time. The minimum agreement is one year, but most are 3, 5, or 20-year contracts with the option to renew at set intervals. If the relationship proves beneficial for both parties the franchising agreement is likely to continue.
There are many protections in place for the franchisee when it comes to the franchising agreement. All franchise agreements must comply with state rules and regulations. To ensure this all franchising agreements are reviewed by the US Federal Trade Administration prior to signing.
As mentioned, these agreements are monitored at the state level. Should you choose to own a franchise in multiple states, your agreements may differ. It is important to be aware of this if you choose to purchase multiple franchises.
Contents of a Franchising Agreement
The average franchise agreement contains:
- Disclosures required by state law
- The parties officially defined in the agreement.
- Recitals, such as Objectives of Parties and Ownership System
- Licensed Rights
- Franchisor Services
- Franchisee Services
- Franchisee payments
- Franchisee obligations
- Franchise Disclosure Document
- General Provisions
- Governing Laws
- Transfer of License