Get answers to some of the most frequently asked questions about buying a franchise business.
Are you considering opening a franchise business but not sure where to begin? Chances are you have questions such as, “How do I start my own franchise?” and “How do franchises work?” Read on for a breakdown of what you need to know and a list of the most successful franchise brands.
What is a franchise and how does it work?
A franchise business provides individual retail owners, or franchisees, the use of the company name, branding, and permission to sell their products and services. All new retail owners typically receive training, although how much training is offered or required varies from franchise to franchise. While individual owners can count on some guidance and support from their franchisor, running the business and adhering to the established rules of operation is the sole responsibility of the franchisee.
The relationship between the franchisor and franchisee is established through a contract or franchise agreement. As with any business arrangement, the specifics vary, but this legally binding document outlines the responsibilities and expectations of both parties.
Why should I buy a franchise?
Unlike opening your own business outright, purchasing a franchise business allows you autonomy, although limited, while providing security and assistance. Buying a franchise rather than building a business from scratch also allows you to benefit from the franchisor’s reputation and brand equity along with their established base of loyal customers. Although there is a certain amount of risk involved in any business venture, these factors make starting your own franchise less risky than building a new business from the ground up.
Franchising can be an extremely rewarding experience, but keep in mind success is not guaranteed. The system will not do all the work for you.
How do I buy a franchise?
Take the time to thoroughly research franchise options available before signing on the dotted line. Think about what industry you’d like to work in and do some digging to find the best companies to partner with in that sector. Most importantly, look for a company with the requirements and terms that best suit you. Be sure to account for every fee for which you will be responsible and ensure the costs are in line with what you can afford, to prevent starting your new business venture in the red.
Talk to current franchisees in the network to learn about aspects that may not be evident on paper, such as company culture and how much the franchisor assists their retail owners. Learn about the competition and how the franchise has performed in the past within the market. An accountant and lawyer can also be helpful for guiding you through fees and requirements hidden in the fine print that could be easily overlooked.
Is owning a franchise profitable?
It can be, especially if you partner with a well-known franchise brand with a proven business system. Refer to the Franchise Disclosure Document for sales, earnings, and expense information but note the franchisor is not required to provide these details. Since every market varies, franchisors cannot explicitly make earnings claims or revenue projections for potential retail owners although they can provide financial representations based on past financial performance. Keep in mind even if the numbers look great, there is no guarantee you will have the same level of success.
Joining a franchise network gives you somewhere to turn if times become difficult, and your franchisor can advise you through some common issues in maintaining a healthy bottom line. However, ultimately you are the one responsible for the financial success of your franchise business.
How do I get funding to buy a franchise?
If you have a limited budget or capital, there are several different financing options for which you may qualify when buying a franchise. The best place to start is with the franchisor. Many have options for financial assistance or incentives for veterans, minorities, or first-time franchisees. If there are no options available within the franchisor’s organization, you can try applying for a loan with the Small Business Association (SBA) or contacting a lending company to discuss financing opportunities. If you’re unable to go that route, you can look into borrowing from a retirement savings account, or apply for a line of credit.
2021 Top 10 Franchise Companies
According to Entrepreneur’s 2021 Franchise 500 ranking, the top ten franchise companies based on an evaluation of costs and fees, size and growth, support, brand strength, and financial strength and stability are:
- Taco Bell
- The UPS Store
- Popeyes Louisiana Kitchen
- Kumon Math & Reading Centers
- Jersey Mike’s Subs
- Planet Fitness
Franchising can be a great way to go into business for yourself but not by yourself. However, there’s a lot to think about and knowledge is key. The more you learn, the better prepared you are to make an educated decision. Before you buy, make sure it’s in an industry you want to be a part of, can potentially give you the returns you’d like, and supports your business and life goals.