One of the quickest and most efficient ways to realize your entrepreneurial dreams is to learn how to start a franchise business. When you buy a franchise, you are essentially buying the rights to own and operate a branch of the larger business subject to the terms defined at the corporate level. The U.S. Federal Trade Commission and other state agencies regulate franchising transactions primarily to protect franchisees from unfair practices.
What is a Franchise Business
A franchise business is one where franchisors or the primary business owners sell business rights to franchisees. The package includes the rights to operate in a defined geographic area to limit competition with other franchisees. The franchise package may include rights to use the brand name, business logo and advertising and marketing materials.
Some franchisors may contribute to build-out expenses, including real property costs. Real estate costs may cover lease or acquisition expenses and monthly rent. The franchise agreement will also define the scope of operations of the new business owner. Products, equipment, supplies may be included along with the operating system and practice guidelines. By franchising, the business expands quickly while the company maintains a consistent image.
Establishing a Franchise Relationship
To invest in a franchise, you will need to register your interest with the franchisor. Your application will be reviewed by a screening team, after which you will be asked to pay a an initial and franchise fee if approved. The screening team will base their approval on proof that you are passionate about the business, your experience, credit scores and net worth. Upon approval, you will be trained in the operation and marketing systems of the firm. The franchisor will assist in setting up the business from the planning phase to the build-out stage, setting up product displays and marketing.
Depending on the agreement you signed, you have to plan on paying the franchisor a monthly, quarterly or yearly fee based on gross receipts. In return, you can consult with the company’s experts for help with any glitches.
Management and Control of the Business
The franchisor has the right to require compliance with the company’s standards and practices. This will include site layout and design, staff uniforms along with internal and external merchandising displays. Typically, pricing of products and services should be consistent with franchisor guidelines to support uniformity and consistency throughout the business chain. In some cases, the franchisor may allow the franchisee to carry a very limited amount of non-franchise inventory.
Types of Franchise Businesses
Franchising is a common strategy used by businesses that wish to expand to other states. It is an efficient system because the franchisor does not have to spend on site finding, lease or acquisition and manpower. Franchisees are given access to the operation and marketing system of the franchisor company among other benefits.
Franchising is a strategy used across different industries. These sectors include:
- Quick-service restaurants
- Full-service restaurants
- Retail groceries
- Real estate offices
- Various commercial and residential services
- Medical care and supplies for the elderly
Related Resource: Small Business Association Microloan Program
Franchising a business is a legitimate strategy if your goal is to develop your entrepreneurial drive and hone your business abilities. Franchise laws and regulations are stringent enough to protect inexperienced franchisees. Find out how to start a franchise business from experts in this field such as other franchisees or lawyers.
