What is Involved in Starting a Franchise?

What is Involved in Starting a Franchise?

Starting a franchise can be a stressful undertaking as there is much to consider in terms of workload and what your life will look like. Your experience will vary depending on a variety of factors, one way you can get your start in the entrepreneurial world is by working with an established franchise in your area.

It can be incredibly effective since you are working with a brand that people will recognize, so the likelihood you will be successful grows just a little bit, but one thing is constant when starting a new franchise. You will have some pretty significant expenses. While you can reduce some of them, you can’t reduce all of them. Here’s a look at what you can expect if you are starting a franchise.

Purchasing the Franchise

The first way that you determine your franchise’s success is the way in which you buy it. One of the main benefits is that you have the backing of the larger franchisor to help you get off the ground. As mentioned before, you don’t have to spend as much time convincing everyone your brand is worth investing in, they’ll just get it.

But you need to have a plan to actually fund your purchase. Some people take the money they have saved up and put it all toward their franchising dreams. Other people find investors. Some people just take out loans because they believe in the franchise idea.

Startup Expenses

When joining a well-known, successful franchise, you can reasonably expect to pay at least $150,000 in one-time costs. Depending on the franchise, this number can vary, but these expenses are unavoidable. Examples of startup costs include real estate purchases and renovations, equipment and inventory acquisition, legal fees, accounting costs, and more.

While these fees will change depending on a variety of factors, you should make sure you fully research your franchise of choice in order to determine how much money you will need. The franchise should be able to assist you to determine how much money you will need to spend.

Franchise Fees

Franchise fees are one of the largest single expenses associated with starting a franchise according to The Balance Small Business. They are the fees that one pays to a franchisor for using its name and brand and opening a business with all those associated items. Depending on the specific agreement, they can also be considered to be part of the agreement that allows a franchisor to provide services to a franchisee.

These fees can range depending on the quality, name brand, and expertise of the franchisors. They can be as little as $500 but as much as $50,000, and they are regulated by the Federal Trade Commission.

Establishing Your Location

After you have committed to buying the franchise, you need to be strategic about its placement. You can’t just plop down your restaurant anywhere and expect it to be successful, you have to take location into account. One of your goals should be to occupy a medium-busy street with convenient parking.

If it’s hard to park at your business, some customers may just drive a little further to an easily accessible location. Others may not even realize you are there. Additionally, a busy street can be promising, but you may not be enticing to as many customers as you’d hope.

Hiring the Right People

Your next step to “lock-in” your success is to do business with the right people. You need to hire people who are competent at their job and who will encourage people to come back again. While it may not be as easy to do with different franchises, people who are easy to work with and nice to customers will become an incentive for potential customers.

Use websites that track people’s resumes and hand you the best candidates. It can streamline your hiring process and make it easier for you to hire great employees.

Working Capital

Working capital is the amount of money that a person must have in order to operate as a business before his or her company begins to turn a profit. There are several different formulas that dictate how working capital is calculated, but it is best for you to consult with your franchisor to determine how much working capital you should have.


Starting a franchise

Starting a franchise requires significant financial planning, serious research, and consulting with professionals who work for your franchisor and who will monitor your own financial interest. However, one thing is for certain, when you start a franchise, you cannot afford to be surprised. Make sure that you know what you are getting into before you sign a contract or spend a dime. This will ensure that you protect your own financial interests.

Becoming a franchise owner is a lot of hard work—it just might not be what you are expecting. Make sure you do your research before making any franchise purchase and propose certain areas for your business to be located.


Need working capital to grow your franchise? Check out Capital for Business funding solutions or apply for a business loan today.


Read this next: How to Find Clients for Your Business

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