Considering Buying a Franchise? Steps, Costs and Considerations

You’re thinking about buying a franchise. As an aspiring entrepreneur, you may be weighing the differences between opening an independent business and pursuing a franchise opportunity.

Many choose franchising because it offers the chance to operate under an established brand, with training programs and a system of operations already in place. Buying a franchise can provide structure and support that appeals to those who don’t want to start completely from scratch.

Before moving forward, it’s important to understand how to evaluate the many options available. Careful research is the first step toward finding a franchise that aligns with your interests, resources and long-term plans.

Let’s go over some of the recommended steps.

Step 1 – Researching Franchise Opportunities

The first step in buying a franchise is exploring what types of businesses are available. Franchises exist across many industries, from retail and food service to logistics, health and business services.

Taking time to explore a range of industries can help you understand which categories match your interests, skills and financial resources. As a side note, it’s always a good idea to have a passion for the industry you’ll service.

There are several ways to begin your research:

• Franchise directories and online listings: These allow you to compare industries, fees and support structures across different brands. Many brands, such as The UPS Store® network, have a franchise sales or franchise opportunities page, that helps aspiring entrepreneurs find opportunities.
• Franchisor websites: Many brands provide detailed information on estimated costs, training and requirements.
• Industry publications and trade shows: These can give you a broader look at trends and available opportunities.
• Franchise Disclosure Document (FDD): Be disclosed with and review the disclosure document for brands in the industry you are interested in. 

As you explore, it’s important to evaluate how each franchise aligns with your goals. Consider the brand’s reputation, the level of training and support offered and whether the industry is a good fit for your skills and local market. It's a good idea to truly immerse yourself in the matter so you understand where you best fit in.

Step 2 – Speaking with Current and Former Franchisees

One of the best ways to understand what life as a franchise owner is really like is by talking to those who are already doing it.

Current and former franchisees can provide valuable insights into daily operations, the type of support they’ve received and the challenges they’ve faced along the way. These conversations, often called “validation calls,” help prospective buyers get a real-world perspective that goes beyond what’s written in the Franchise Disclosure Document. You get real, authentic insights that are relatable and specific to unique types of experiences.

For example, Ben and Heide Bradshaw, owners of a The UPS Store® franchise in Redding, California, demonstrate how being part of The UPS Store network allows them to serve their community. 

They often help local entrepreneurs pack and ship one-of-a-kind products securely, help ensuring each item arrives safely at its destination — extending the same care and quality service that the creator of the product would. 

The Bradshaws became franchisees to continue their career in helping others and to inspire their children, showing that with dedication, dreams can come true. Both are committed to helping small businesses in their area thrive by offering the full range of products and services at their store, all while building a family business that supports their neighborhood.

By learning from franchise owners like the Bradshaws, you can get a clearer picture of how a franchise fits into everyday life — from running the business to serving customers in the community.

Step 3 – Understanding Franchise Costs and Fees

Buying a franchise involves more than just paying an upfront fee. There are several types of costs to plan for and understanding them can help you prepare a realistic budget. These expenses vary by brand and industry, so it’s important to review each carefully.

Here are some of the common costs associated with buying a franchise:

Ongoing Royalties

Royalties are recurring payments to the franchisor, often calculated as a percentage of your gross sales.

• Example: If royalties are 5% and your monthly sales are $50,000, you would pay $2,500 in royalties that month. Most royalty fees range from 4% to 8% of gross sales, but this does vary by industry and franchise.
• Some franchises use a flat monthly fee, but percentage-based royalties are most common.

Marketing Fees

Most franchisors require contributions to a shared marketing fund, which is used to promote the brand on a regional or national level.

• Example: These contributions might help fund television ads, social media campaigns, billboards or bus stop signage that benefit franchisees in the system.
• You may also be required to participate in local marketing in your community yourself and/or with a group of local franchisees. These pooled contributions may allow franchisees to access broader campaigns.

Initial Investment Expenses

In addition to the initial franchise fee, you’ll need to cover the costs of initial investments to set up your business. These can include:

• Equipment – such as shipping counters, printers or packing machinery. For example, a high-capacity commercial printer might cost $10,000–$20,000 depending on specifications.
• Leasehold improvements – costs to build out or renovate your location. Depending on the franchise’s brand requirements, you’ll want to make the space as much yours and a reflection of the community as you can.
• Signage, supplies and inventory – some of the more obvious items, all needed to get your store operational. 

Other Expenses

Additional costs may include and may be ongoing:

• Insurance – general liability insurance for a small business can range from about $40 to $80 per month, while more comprehensive business insurance packages can run $500 to $1,000 annually, depending on location and coverage (source: Insureon122).
• Technology systems – point-of-sale systems, software subscriptions, technology fees or security systems.
• Travel for training – transportation and lodging for required initial training sessions.

Understanding these different cost categories is an important step before exploring financing options.

Step 4 – Exploring Financing Options

Once you understand the costs involved in buying a franchise, the next step is determining how to cover those expenses. Most franchise buyers use a combination of funding sources to meet the initial investment requirements. Below are some common financing options:

Personal Savings

Many franchise buyers use their own savings to cover at least part of the initial costs. 

Self-funding can reduce debt and give you more control over the business. 

Small Business Loans (including SBA loans)

Traditional bank loans and Small Business Administration (SBA) loans are both common ways to finance a franchise purchase, but they differ in how they are structured. A traditional bank loan is issued directly by a bank or credit union, with approval based on factors like your credit history, collateral and the lender’s evaluation of risk. Terms and interest rates can vary, and approval may be more difficult for those without an established business record.

SBA loans, on the other hand, are still issued by banks but are partially guaranteed by the U.S. Small Business Administration. This government guarantee reduces the lender’s risk, which can make it easier for borrowers to qualify. One of the most common options is the SBA 7(a) loan, which can be used for startup costs, equipment or working capital. These loans often involve more paperwork and longer processing times, but they typically come with competitive rates and longer repayment terms.

• SBA 7(a) loans are popular because they can be used for startup costs, equipment or working capital.
• Lenders often view established franchise brands more favorably, since they have recognizable systems and history.
• Borrowers should be prepared with a business plan, personal financial statements and collateral.

Franchisor Financing Programs

Some franchisors provide financing options directly or through preferred lending partners. These programs may cover expenses such as franchise fees, equipment or startup costs. Availability and terms vary by brand, so it’s important to ask about financing when you begin your research.

At the same time, franchise brands encourage prospective franchisees to also explore lending options from outside lenders who specialize in franchise financing. Comparing both internal (if available) and external options can help ensure you choose the arrangement that best fits your business needs.

• These programs may cover the franchise fee, equipment or other startup costs.
• Terms and availability vary, and not all franchisors provide internal financing, so it’s important to ask during the research stage.

Investors or Partnerships

Some franchise buyers choose to bring in a business partner or outside investor to help finance the purchase. 

In these cases, an investor may provide capital in exchange for equity in the business or a share of profits. Partnerships can reduce the financial burden on a single buyer, but they also require clear agreements to define responsibilities, ownership percentages and decision-making authority.

For example, two aspiring franchise owners might decide to open a location together by splitting the startup costs and ongoing expenses. One partner may contribute more capital up front, while the other focuses on day-to-day operations. This arrangement allows them to share both the risks and the workload but also underscores the importance of having a written agreement to avoid conflicts later on.

• Investors may provide capital in exchange for equity or a share of profits.
• Partnerships can reduce the financial burden on a single buyer but require clear agreements about responsibilities and ownership.

Step 5 – Reviewing the Franchise Disclosure Document (FDD)

Before buying a franchise, you will be disclosed with a Franchise Disclosure Document (FDD). This is a legally required document that franchisors must disclose prospective buyers with. It contains set disclosures related to the franchise system, including the fees, requirements and the support a franchisor provides.

The FDD is typically hundreds of pages long and divided into 23 items, each containing required disclosures. Some of the most important items include:

• Costs and fees: details about the initial franchise fee, royalties and ongoing fees and costs.
• Franchisor information: history of the company, leadership and any required litigation disclosures.
• Financial performance representations: optional financial performance representations provided by the franchisor (if provided).
• Franchisee obligations: system of operations, requirements, training and brand standards.

Franchisor support and training programs It is strongly recommended that prospective buyers review the FDD with a franchise attorney, accountant and/or other advisors. These professionals can help explain the legal and financial details, risks and help you understand your obligations and investment before making a commitment.

Step 6 – Location and Territory 

Choosing the right location is one of the most significant steps in buying a franchise. A good location can help attract customers, while a poor one may limit visibility and growth. Many franchisors provide guidance on site selection, but it’s still important to understand the factors that matter most in your local market.

Territory rights are another key consideration. 

In many systems, a franchisor grants franchisees protected rights to operate within a certain geographic area. This can protect you from competing directly with another franchisee of the same brand in your territory. Understanding how territories are defined by ZIP code, population or distance radius can help you gauge your potential customer base.

When evaluating potential locations, think about:

• Visibility and accessibility – Is the site easy to find and convenient for customers to visit? It could be simple considerations, such as the inability to make a left-hand turn into the lot.
• Foot traffic – Are there nearby businesses or attractions that naturally bring people to the area? Having your store in an area that people already enjoy going to not only increases brand visibility, encourages people to use your services while running other errands.
• Competition – How close are other businesses, both within the franchise system and from competitors? Again, there may be existing stipulations in the franchise agreement pertaining to this.
• Local demand – Does the area have the demographics and customer base to support your business? 

Franchisees often work closely with the franchisor during the site selection process, but it’s typically ultimately your decision as to where you choose to place your franchise location. Visiting potential locations, studying neighborhood traffic and considering long-term growth in the area can all help you make an informed decision.

Step 7 – Moving Forward with the Purchase of a Franchise

Once you’ve completed your research, been disclosed with and reviewed the FDD, explored financing and selected a location, the final step is signing the franchise agreement and any other required agreements. 

This is the legal contract that defines your relationship with the franchisor. It outlines your rights, obligations and the terms under which you’ll operate your franchise.

Before signing, it’s a good idea to review the agreements carefully with a franchise attorney. They can help explain the terms of the agreements and ensure you understand the commitments involved. Once the agreement is fully executed, you’ll typically begin the onboarding process, which may include training, site build-out and preparation for opening day.

The first months after signing are often focused on getting your location operational, hiring any employees you may need, installing equipment and training. With each step, you’ll move closer to officially opening your doors to customers.

Key Considerations Before You Buy a Franchise

Buying a franchise is a major decision, and there are several factors worth reflecting on before moving forward:

• Personal goals – Does the franchise model align with the lifestyle and time commitment you want?
• Franchisor support – What training, marketing and operational systems are provided, and do they meet your expectations?
• Local market demand – Is there a customer base in your area for the products or services offered?
• Financial readiness – Have you considered both upfront and ongoing costs, as well as working capital needs?
• Long-term planning – Are you interested in operating a single location or do you want to explore multi-unit ownership in the future?

These considerations can help you weigh whether franchising is the right path for you at this stage.

Frequently Asked Questions About Buying a Franchise

How can I find a franchise for sale?
There are several ways to search for franchises currently available. Many people begin with franchise directories, industry websites or by contacting franchisors directly. Some brands also list opportunities on their own websites. For example, you can explore available locations on The UPS Store® franchise opportunity page, which highlights existing The UPS Store centers that are for sale in different markets.

How much does it cost to buy a franchise?
Franchise costs vary widely depending on the brand, location and industry. Some smaller models may start under $100,000, while larger or more complex franchises can require investments in the hundreds of thousands. It’s important to review the Franchise Disclosure Document (FDD) for detailed cost and investment breakdowns.

Do all franchises charge royalties?
Most franchises do, though the structure can vary. Many charge a percentage of gross sales, often between 4% and 8%. Others may use a flat monthly fee. The specific royalty terms will be detailed in the FDD.

Can I finance a franchise purchase?
Financing options may exist for qualified buyers. Many buyers use a mix of personal savings, bank loans, SBA loans, franchisor financing programs or partnerships. Exploring multiple funding options can help you find the arrangement that best fits your situation.

What is a Franchise Disclosure Document (FDD)?
The FDD is a legal document franchisors must disclose prospective buyers with. It outlines fees, obligations, the system of operations and the history of the franchise, among other required disclosures. Reviewing it with a franchise attorney and/or accountant is highly recommended.

How important is location when buying a franchise?
Location plays a major role in visibility, accessibility and customer traffic. Many franchisors assist with site selection and grant protected territories to protect franchisees from competing with one another in the same area.

What should I ask current franchisees?
Consider asking about their experience with franchise training, day-to-day operations, support from the franchisor and challenges they’ve faced. These conversations can provide practical insights that aren’t always found in official documents.

Conclusion

Buying a franchise is a step-by-step process that involves research, due diligence with existing franchisees, financial planning, legal review and careful site selection. Each stage provides information that can help you make a more informed decision.

By approaching the process thoughtfully from the initial research to signing the agreement, you’ll be better prepared to understand what a franchise investment involves. Take your time, ask questions and seek professional guidance where needed.