Want to start your own business, but aren’t sure how to and are reluctant to start a company from scratch?
Franchising is the way to go! With franchise ownership, you buy into an established business that comes with a proven business model, brand recognition, loyal customers, and ongoing marketing and advertising campaigns. Your job as a franchise owner is to use this established business model to turn a profit for yourself without having to worry about starting a company from the ground up.
But how do you buy a franchise? This guide offers a detailed look at how to become a franchise owner in 6 steps and breaks everything down in in-depth. Find out how to buy a franchise below!
1. Research Franchise Opportunities
The first step when you’re looking at how to become a franchise owner is to research available franchise opportunities that may be a good fit for you. Ask yourself some key questions about which franchise you’d like to buy and what your current financial situation and experience is. Some of these questions should include:
- Which industry do you want to work in?
- Which specific franchises are you interested in?
- How much business experience do you have?
- How much training and support would you need from a franchisor?
- What is your current financial situation?
- What is your net worth?
- What is your credit score?
- How easily can you obtain financing?
After seriously considering these questions and more, begin your search for the right franchise, keeping in mind important aspects like the total investment cost required to buy a franchise unit, the ongoing fees and royalty payments, training and support required, and the like.
Fortunately, AskMrFranchise makes it easy to research and find franchise opportunities. Compare franchise opportunities to find the one best for you, or take our QuickMatch questionnaire to find franchise matches based on your budget, location, interests, and other criteria in a matter of seconds. We also offer plenty of affordable franchise options if you’re on a tight budget or have a limited amount of time to find financing.
Take a look around and see what works best for you!
2. Contact Franchisors for FDDs and Application Forms
After asking yourself the key questions and doing some research, narrow down your list of potential franchises based on factors like cost, location, industry, and the like. Then, reach out to the franchisors you’re interested in and fill out their initial application and questionnaire forms. Afterwards, you’ll likely go on to meet with a franchise representative and receive a copy of their franchise disclosure document (FDD).
An FDD is a document provided by the franchisor to prospective franchisees that offers an in-depth look at the franchise broken down into 23 categories, including the franchisees’ responsibilities, fees and royalties, the company’s history, regulations, and much more. FDDs are presented to prospective franchisees at least 14 days prior to the signing of any franchise agreements or the payment of initial franchise fees.
Always review an FDD carefully prior to deciding to sign a franchise agreement. Going over them in detail with a franchise attorney is often a good idea too.
3. Attend a Franchise Discovery Day
The next step in the process of how to become a franchise owner is to attend a franchise discovery day.
Franchise discovery days are meetings between franchisors and prospective franchisees, typically at the franchisor’s main office. Their purpose is to help prospective franchisees learn more about the company, while also helping the franchisor vet them more closely.
They usually consist of a combination of interviews, one-on-one meetings, group presentations, and visits to franchise locations and are a prime opportunity to ask additional questions to dive deeper into the business, such as:
- What are the company’s expansion plans for the long-term?
- What type of training and support is offered?
- How does franchisor-franchisee contact work?
- What are the rules regarding multi-unit franchising?
By learning more about the company at a franchise discovery day, you can decide whether you want to move forward with buying a franchise or not.
4. Carefully Review and Sign a Franchise Agreement
Next, if you’re comfortable with moving forward with buying a franchise, very carefully review and sign the franchise agreement. Before doing so, always be sure that you’ve consulted with a franchise lawyer beforehand and have the answers to critical questions like what the franchise’s fees and royalties are, the rules pertaining to franchise agreement transfers and terminations are, and the like.
5. Obtain Financing
Afterwards, the next step is to work with your franchisor to find a location and obtain financing for your franchise unit. The first cost is paying the initial franchise fee, followed by the initial investment in the franchise unit that could include real estate costs, equipment, decor, and the like depending on which type of franchise you buy.
Notably, most lenders don’t loan you money to cover the initial franchise fee. However, it may be included as part of a down payment if you apply to some traditional bank loans or a Small Business Administration (SBA) loan.
The good news for franchisees is that franchise financing can be obtained from a number of sources. Just a few of these include:
- Franchisor Financing: One important but sometimes overlooked franchise financing method is to use the franchisor’s own lending and financing options if available. For new franchisees, always ask for help from the franchisor first!
- SBA Loans: These loans are administered by the SBA and enjoy low interest rates and the backing of the Federal government. Overall, they’re one of the most popular forms of financing for franchises.
- Angel Investors: Angel investors are an increasingly popular financing option for new franchisees, as they’re willing to invest in new and small business ventures.
- Traditional Bank Loans: Loans from conventional banks and major financial forms are another time-tested and popular way to finance buying a franchise unit.
- ROBS: Short for Rollovers as Business Startups, this franchise financing method lets entrepreneurs invest up to 100% of their retirement funds in a franchise without any penalties.
- Stock Market: Investing in stocks and bonds can be another way to obtain financing for buying a franchise.
- Home Equity: If you’re a homeowner, you may be able to use your home as collateral for franchise financing.
6. Attend the Required Classes and Training Sessions
The final step in how to become a franchise owner is to attend the required training sessions, classes, and workshops sponsored by the franchisor for new franchisees before they get started with actually running their new franchise unit on a day-to-day basis.
Although these training sessions vary by franchise, they usually involve learning more about the company’s products and services, guidelines and regulations, and systems commonly used as well as marketing, employee management, bookkeeping, and more. These training sessions typically include a mix of classroom instruction, on-site training, and hands-on workshops.
After this, all that’s left is getting ready for the grand opening.
Congrats! You’re now a franchise owner.
Get Started with Buying a Franchise Today!
Now that you know how to buy a franchise, there’s only one thing missing: actually buying franchise!
If you’re looking to take the next steps to becoming your own boss, get started with buying a franchise as soon as possible. The process isn’t nearly as complex as it seems and offers a path to financial freedom and the fulfillment that comes with being an entrepreneur.
See what opportunities franchising can unlock for you – take the first step towards buying a franchise today!