1. A Proven System
Owning a franchise is more than owning a business. Many people own businesses, but they are required to be there every day to make money. They cannot enjoy some of the benefits of business ownership as they are the business.
When you own your own business or you have a J-O-B, you are paid for doing work. When you own a franchise, you earn income following a proven system. Franchises succeed because someone has already done the labor to develop the product or service, the brand identity, and the marketing and distribution plans.
As a franchisee, you are a systems implementer, not an employee of the business. This is the difference between being a hairstylist or owning a salon that operates and generates income whether or not you personally are cutting hair. The true benefits of owning a business come when systems are in place so the business can run with or without you.
2. Write Your Own Paycheck
When you own a successful business that operates with a proven system, you decide how much money you want to make. If you want to make more money, you can open more units or increase the inputs in your existing system to increase the output. For example, if you own a mobile van business or a retail store, you can choose to add more mobile vans on the road or open more retail units.
3. True Retirement Planning
For most people, retirement planning means working hard and putting money away in a 401K, an IRA, or some other retirement plan. Then you rely on someone else to manage your money, and you hope for good returns.
When you own a franchise, you build your income as you build your business, and you also grow your personal net worth. The day will come when you want to get out of the business. At that time, you can sell your income generating assets, either for a fixed dollar amount or for monthly payments, so you can retire.
If you want a nest egg, give your money away to someone else to manage. If you want a bigger nest egg, use your own capital and management abilities to create and grow a greater future net worth.
Now it should be clear why you would want to own a franchise: the benefit of systems; unlimited financial opportunity; and the ability to secure your future. Franchise ownership is the number one way non-business owners succeed in business, and why so many successful business people pursue multiple franchises and multiple units to truly control their financial future.
There are more than 1,000 companies that offer franchise business opportunities. To begin searching for the one that is right for you, see the article on “Narrowing Your List of Franchises,” or use the FranchisesForSale.com search tool.
Franchise Opportunities: Which is Best?
Why Own A Franchise?
What is a Franchise Disclosure Document?
If you’re reading this, you probably want to be your own boss. And you are considering buying a franchise. Good choice. But there are many points to consider. Many people think that to own a franchise, you just search for a list of franchises, find out how much they cost, and decide which one to buy.
In reality, a franchise is “awarded” by the company (the Franchisor), to the buyer (the Franchisee). There is an application to submit, due diligence on both sides, criteria to fulfill, and more. You are creating a business relationship – often for 10 years – and this is not to be taken lightly. Typically, there are seven steps to franchise ownership.
- Find a Franchise Concept that Fits
- Submit Request for Consideration/Application
- The Franchise Disclosure Document
- Training and Support Overview
- Franchise Disclosure Review
- Franchise Due Diligence
- Celebration or Discovery Day
Step 1: Find a Franchise Concept that Fits
First, you need to see a list of franchises to explore available concepts and opportunities. There are more than 1,100 franchise businesses currently registered with the International Franchise Association. Many healthy, growing franchises are listed at
Franchises For Sale.com. How will you know which one is right for you? Besides cost and location, you also need to know a few things about yourself, what you like to do and what financial and human resources you have available. See the article, “Narrowing Your List of Franchises” for more helpful information. You can also use the Search for Franchises tool to the left of this article to find out more about different industries and the types of businesses, or franchise concepts, available.
Step 2: Submit Request for Consideration/Application
To get started, choose two to three industry categories, such as casual dining franchise, automotive franchise, cleaning franchise, healthcare or senior care franchise. Within each category, choose one to three concepts or companies from which to request information. If you're using the FranchisesForSale.com search tool, use the "contact me" button to request information.
If you still don't see what you like, go back to the categories again and choose some more. This way, you won't be inundated all at once with information, 90% of which does not appeal to you. The companies will receive your requests immediately. They will match you with a representative, and you should receive information back from them in a week by e-mail and/or telephone.
Step 3: The Franchise Disclosure Document (aka: the legal stuff)
Now it gets fun. Now you get to explore in detail the industry, the company, its business model, the role of the Franchisor and the role of the Franchisee. The Franchisor will provide all of this in their Franchise Disclosure Document (FDD).
This document, required by the Federal Trade Commission (FTC), helps you understand the franchise model, fees, and commitments in the Franchise Agreement. (The Franchise Agreement is in Step 7.) The FDD is the legal document that defines the relationship between the Franchisee and the Franchisor.
The FDD can be over 200 pages long. Don't be afraid; but do read it. Start with the sections that interest you. That may be the fees, restrictions, training, advertising, hours of operation, etc. You'll want to know what your obligation will be, and what the franchisor will and will not provide.
Step 4: Training and Support Overview
One of the major benefits of being a franchisee business owner is that someone else has done the ground work for you. They have created the concept, researched the market, developed the product and service offerings, and are willing to share their trade secrets, marketing and training programs with you. For a fee.
The Franchisor should provide you with a detailed outline of the kind of support, both operational and marketing, and training you can expect. They may provide onsite training at your location, or you may have to travel to them for it. Some have detailed advertising and marketing support, some provide only online and phone support. Know what you are comfortable with and how much support you think you will need.
Step 5: Franchise Disclosure Review
We are about to get down to business. You will have an in-depth conversation or interview with your Franchisor Representative (from Step 2). Together you will review the FDD and discuss available territory. This is your opportunity to go through the FDD section by section and ask any questions that may have come up in the process of exploring the franchise business opportunity.
Step 6: Franchise Due Diligence
At this point, you should have a detailed understanding of the Franchisor, their industry, marketing, operations and support for franchisees. But don’t make any hasty decisions. At Franchisecompany.com, we recommend you speak to someone at the corporate office of each franchise you are considering. In addition, you may want to contact several franchisees from each.
Keep in mind that while you are evaluating how a particular franchise concept fits your needs, the Franchisor is comparing you to their “ideal candidate” profile. Preparing helps. Use the Franchise Interview Questions to help you get an edge on being selected as a candidate for the franchise award.
Step 7: Celebration or Discovery Day
Congratulations! If all goes well, this is the final step in the mutual evaluation process before being awarded the franchise business. This is the day you sign the Franchise Agreement and meet department heads and key executives who will work closely with you as a franchisee. Now you’re in business – you own a franchise!
Franchise Opportunities: Which is Best?
Why Own A Franchise?
Buying a Franchise
What is it, and why do I care?
By now you’ve considered maybe a dozen franchise opportunities. You’re really excited about the franchise brand or concept you found. You like the web site, you see the growth potential, and you think it’s a fit. You ask for more information.
Boom. A 200+ page document lands on your desk: The Franchise Disclosure Document (FDD). Do not use it as a paperweight or a booster seat. There is some really important stuff in there that you need to understand before you begin a financial relationship with the franchisor (the person or company who owns the franchise brand).
If you hate surprises, read the whole thing -- especially the actual Franchise Agreement (in the Exhibit section). At the very least, become familiar with the following sections. They are just a snapshot of what you really need to read before you sign anything.
Page 1: There should be a cover page that gives a brief overview of the nature of the business, the start up costs, and the franchise arrangement.
Section 1: The Franchisor. You should know with whom you will be doing business. This section details how long the company has been in business, how the business is organized, and whether there is a parent company, affiliates or subsidiaries. It also may address competition, laws, licensing and permits required.
Section 2: Business Experience. This section lists the leadership team and their position with the company, and may even list other industry experience. Make sure there is sufficient support and expertise in operations, marketing and technology for you to be successful.
Section 3: Litigation. Don’t be alarmed. Many new and growing franchise brands could be involved in some legal action. The number of law suits isn’t important. But the nature of the complaint and how it was resolved are. Does the complaint affect your ability to be successful? Do you think the franchisor acted fairly? Would you want them to resolve your concerns in a similar fashion?
Section 6: Other Fees. These are ongoing fees after the initial start-up costs, such as advertising, technology, and of course, royalty. These fees help the franchisor maintain the brand and provide quality support systems so you can be successful. Potential penalties should also be noted in this section.
Section 7: Estimated Initial Investment. In addition to the franchise fee, there are other costs that will be included in initial or start-up fees. For example, deposits and rental costs, commercial space, equipment, food or product inventory, or build out required to get the business started.
Section 17: Renewal, Termination, Transfer and Dispute Resolution. This section covers your exit strategies. At some point you may decide you don’t want to own this business anymore. Proper planning is key for future success.
Renewal – Renewal at contract end may not be automatic. Know the terms of renewing your Franchise Agreement and what might put you at risk. Renewal may not be up to you -- it may be at the franchisor’s discretion,
Termination – In most cases, a franchisor can terminate your contract for any number of reasons. Understand them and be sure that you can live by those rules.
Transfer – Transfer is especially important if you are buying a franchise business to build an asset. This section details your right to transfer to another buyer who will assume your business assets. Many franchisors reserve the right to approve the candidate in a transfer. So just because Jo is your relative, doesn’t mean the franchisor will let him or her take over the business.
Dispute Resolution – Know your franchisor’s preferred method of dispute resolution. The results may be binding and you should be comfortable with how disputes are handled.
Section 19: Earnings Claim or Financial Performance Representation. This section may or may not be included as it is not a required section. By law, franchisors are only allowed to discuss performance information if it’s already published in the FDD. What if there is no information in the FDD? The franchisor will not discuss financial performance of the franchises. But you can and you should ask other franchisees and former franchisees as part of your research or due diligence.
Section 20: Outlets and Franchisee Information. Do not skip calling others! In the Exhibit section, the Franchisor provides a list of current and former franchisees. It is well worth your time to call at least 10 current and former franchise owners and ask them about their experience with the franchisor you are considering. You can choose them randomly or look for ones in a market similar to yours. If you don’t know what to ask, see this list of questions.
For more information, see Guide to Buying a Franchise.
Franchise Opportunities: Which is Best?
Why Own A Franchise?
Buying a Franchise
What is a Franchise Disclosure Document?
Creative Financing for Franchise Ownership
