Thinking about starting a new business? Franchising could be the perfect option, but you must know how to choose a franchise before starting one.
Purchasing a franchise opens up multiple avenues for expansion, income, and growth. Our team at Integrated Cash Logistics is here to ensure that you know all the facts before owning a franchise business so you can find one that fits your plan for the future.
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How To Choose a Franchise
Knowing how to obtain a franchise requires more than just looking into a company with a successful track record. There are many other aspects to consider that can make all the difference when you’re researching the right brand for your business venture.
Beyond looking at the overall cost to buy a franchise and the market demand, it’s first important to turn inward and ask yourself a few questions, such as:
- What are my personal goals with this franchise or industry?
- What kind of industry do I want to look into?
- What kind of role do I want to play in this franchise?
- Would this franchise affect my current business/lifestyle?
These questions can help point you in the right direction when considering franchise options.
Assess Your Budget and Financial Readiness
One of the most important factors before investing in a franchise is your budget. This will determine what kind of business you can invest in like retail or a restaurant, how many potential franchise locations you can open, and what kind of expansion may be open to you in the future.
There are many hidden fees that go into opening a franchise, such as:
- Franchising fees
- Royalty payments
- Advertising fees
- Specific franchisor-required upgrades
- Location taxes
Beyond these costs, there are also operational expenses, employee fees, and working capital to consider, all of which can quickly add up. If you’re ready to take on all these costs, you’re one step closer to starting your own consumer’s guide to buying a franchise.
Research Franchise Industry Trends
Looking into industry trends is another important factor in choosing a franchise. While there are many popular sectors for franchises – such as fast food or convenience stores – there are many other areas to research as well, including:
- Beauty and fashion
- Home services
- Hospitality
- Education
- Advertising and marketing
The great thing about franchising is that there are almost endless possibilities for what you might want to explore and invest in.
Once you find the industry that aligns with how you want to grow your business, then it’s time to look into the market demand and location to determine how your franchise will do in the current climate. This can determine how successful your business will be. For example, opening another coffee shop where there’s already an influx might not be the best for growth or profitability.
Evaluate Franchise Support and Training
When starting a franchise, many franchisors will provide support, training, and marketing assistance to help get the business off the ground. Often, the franchise initial fee that you pay the franchisor will cover some of these costs, but it’s imperative to compare how different franchise models base these fees, along with their continued level of support.
Not all franchisors are created equal, however. When looking into how to own a franchise or where to get the capital when purchasing a franchise, the amount of support the franchisor offers is an integral part of which specific brand to look into. When investigating different franchise models, consider the following:
- Does the franchise offer national, corporate, and virtual training?
- What level of support does the franchise offer on a daily, weekly, or monthly basis?
- What kind of technical support does the franchise offer?
- Can you compete with other businesses in the same industry/area with the support the franchise offers you?
- Does the franchise help with insurance or other technical issues?
Analyze Brand Reputation and Market Demand
For an already established company, brand recognition directly impacts profitability. If the franchise you’re considering has experienced steady growth, along with positive reviews and happy customers, and is engaged with the local community, these are all good signs that the brand has made a positive impact and could be a good investment.
The market demand or competition within an industry can also impact your investment. If there is a lot of competition for the same type of home service franchise in a certain town, for example, it can decrease your overall profits. It’s imperative to do accurate and comprehensive market research before determining the best franchise.
Understand Franchise Fees and Ongoing Costs
As mentioned above, there are various costs associated with franchises, such as royalties to pay to the brand, marketing fees, and specific operational expenses and upgrades. These ongoing costs can quickly eat away at your own profits if you aren’t careful when researching franchise possibilities.
Before you dive into how to purchase a franchise and which one to choose, it’s important to create a 1, 5, and maybe even 10-year business plan – depending on how long the franchise contract is – to determine what your long-term financial situation and earnings could be.
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How Much Does It Cost To Buy a Franchise?
Now that you know more about how to choose the franchise that best aligns with your interests, just how much does it cost to buy a franchise?
To begin, depending on the business and industry you’re looking into, startup costs generally range anywhere from $100,000 to $300,000. Often, the most expensive franchises include full-service restaurants or hotels, with mobile or home-based businesses coming in at much less.
After this, royalty fees each month, upgrades, and other fixes completely vary from brand to brand, but it’s imperative to look into these hidden costs that may influence your total investment. According to Franchise Business Review, the average franchisee earns $66,000 in annual profit. While many factors contribute to a franchise’s profits, it’s estimated that a franchisee’s initial investment can be made back in two to five years.
How To Buy a Franchise
Once you’ve done your due diligence into the costs and considerations of how to choose a franchise, the only thing left is the actual purchasing process. This means there are still a few factors to look into before diving in.
Reviewing the Franchise Disclosure Document (FDD)
The Franchise Disclosure Document (FDD) is a document that breaks down every fee, obligation, and expectation the franchise expects of new business owners. This is a legal document between the franchisor and the franchisee, meaning it’s a good idea to partner with an attorney or representative before signing anything.
This document is required by the Federal Trade Commission, and it also details the history and finances of the franchise so each new owner knows the full background before investing. This ensures transparency every step of the way while also allowing you to discuss any potential questions or issues with the franchise before moving forward.
Securing Financing For Franchise Investment
Then, it’s time to secure financing for your involvement. There are various options for raising money, including:
- SBA Loans: A small business loan can be a great source of financing for franchises, with some loans being able to cover initial startup fees, equipment, or real estate requirements. These loans often have lower interest rates than other types of financing as well.
- Personal Savings: Your own personal savings can also help you secure funding, helping offset the initial royalty costs or other needs.
- Third-Party Investors: Reaching out to third-party investors, such as private equity firms or wealthy individuals looking to expand their offerings or income.
Before meeting with any investors, it’s a great idea to prepare a strong business plan to help secure funding and showcase your plan for moving forward.
Meeting With Existing Franchise Owners
Speaking with current franchise owners cannot only expand your connection network but will also give you the understanding you need for any potential challenges that they have experienced. Franchise owners can give you insights into real-life operations, work-life balance, and overall profitability.
You can also speak to current owners about any upgrades they’ve optioned for, such as implementing smart safe technology or needing added security.
Negotiating Terms Before Signing the Agreement
Your franchise agreement needs to be carefully reviewed and negotiated before moving forward. Just because they’re an established franchise doesn’t mean that you need to take their first offer – your lawyer can help you discuss negotiable terms, such as fees, contract length, or renewal options, before continuing with opening locations.
Completing Training and Onboarding Process
After signing the contract, it’s finally time to start the training and onboarding process for your franchise. Helping your new employees master brand standards by utilizing all the training the franchise provides is a great step towards keeping brand awareness alive and thriving, along with ensuring that operational procedures are a success. This includes fully understanding smart safe needs, POS requirements, and more.
How ICL’s Cash Management Solution Enhances Franchise Cash Flow
Are you interested in opening your very own franchise business? Integrated Cash Logistics and our proprietary CashSimple® technology are here to help. We’ve been helping franchise owners for years with our sophisticated yet simple cash management system, ensuring that each business has positive cash flow without the need for provisional credit.
If you’re ready to learn more about how our smart safe technology works in franchise businesses, schedule a demo with our team today. We’re here to be your shortest distance to cash.
