Franchise Buying 101
Want to start a business but not sure where to start? Have you considered buying franchise businesses, but you’re not exactly sure how it works?
First things first: How do franchises work? A franchise is a proven business model where you leverage the power of an established system and brand to help you turn a profit without having to figure everything out on your own.
In this article, we’ll take you through the process of buying a franchise company, explore the costs involved, and answer questions you might have before jumping in.
When to Buy a Franchise
Before you make a decision, it helps to consider when you should buy into a franchise opportunity.
When is the best time for you?
To make that decision, you’ll want to consider your circumstances, financial situation, and business goals.
To start, ask yourself the following:
- Do I have enough money saved for startup costs and ongoing expenses? Do I have access to financing?
- Do the market conditions in my local area make sense for this right now?
- Is this business model feasible within my current lifestyle and goals?
- Will my past experiences support my success in this venture?
- Does the particular franchise I’m considering have a proven brand name and a solid market reputation?
There is no perfect time to buy a franchise company, but as long as you plan ahead, you’re on your way to a smooth and profitable investment.
Types of Franchises to Buy
Many types of franchises exist, spanning a range of industries and business models.
Some of the most popular franchise models include:
Most fast food franchises deliver (no pun intended) a recognizable brand name and a proven business model. Examples include McDonald’s, KFC, and Subway.
Retail franchises sell everything from clothing and fashion to home goods and electronics. Other examples include 7-Eleven, Ace Hardware, and The UPS Store.
Health & Fitness
Health and fitness franchises have quickly risen in popularity over the past several years with businesses like Anytime Fitness, Orange Theory, and Massage Envy.
Automotive franchises include car repair shops, car washes, and oil change services like Midas, Jiffy Lube, and Maaco.
Education franchises offer services like tutoring and test prep. Some also offer daycare and preschool. Education franchise examples include iCode, The Goddard School, and Sylvan Learning.
Service franchises offer cleaning, pest control, home repairs, and other common household assistance. Molly Maid, ServiceMaster, and Mr. Handyman are just a few examples.
What to Consider When Buying a Franchise
The best way to avoid problems when starting a franchise business is to figure out what you don’t know before you go “all in.”
As you start to think about your franchise business review plan, it’s worth considering:
- Franchise fees and royalties: Franchise fees vary from one brand to the next, so you need to understand the initial costs and ongoing royalties.
- Territory and competition: How much competition exists in the territory you’ll own? Some franchisors have exclusive territories, while others have no territory restrictions (which could cut into your profits).
- Training and support: What do you get in terms of initial training, ongoing support, and marketing assistance?
- Business model and reputation: This is a big one, so you should consider whether or not the brand/business aligns with your values and goals.
- Financial requirements: What are the costs involved, and how quickly can the franchise turn a profit?
- Legal considerations: What is the legal structure? What are you agreeing to? Are there any restrictions, termination clauses, or non-compete agreements to consider?
Each of these can affect the type of franchise brand you decide to invest in. Consider each area carefully so you make the best decision from the start.
How Much Does it Cost to Buy a Franchise?
Cost is among the most important factors to think about before investing in a franchise brand.
So what costs should you expect, and how much will they be?
Since franchises vary so wildly in types, there’s no set answer for this.
For instance, new franchises could cost as little as $10,000, while some brands can cost upwards of $1,000,000.
Generally, you can anticipate the following expenses:
- Franchise fee: the initial fee paid to the franchisor to use their trademark, system, and business model. Franchise fees can range from a few thousand to hundreds of thousands of dollars.
- Initial investment: This includes all the costs of opening a location, including equipment, inventory, real estate, and construction. Again, this can be tens of thousands to millions.
- Royalties: A percentage of revenue paid to the franchisor for ongoing support, training, and services. Royalties usually range from 4% to 12% of gross revenue.
- Advertising and marketing: To operate a successful and profitable franchise, you’ll need customers. Depending on the approach, marketing can cost very little, or it can cost thousands.
- Other fees: There may be additional fees associated with the franchise brand like technology, renewal, and transfer fees.
On the bright side, because the costs vary so much, there’s a franchise for everyone whether your budget is restricted or boundless.
Are Franchises Profitable?
They can be…but we’d be lying if we said they all are. How profitable a franchise is depends on the franchise location, industry, business model, and management ability.
One of the advantages of owning an existing franchise is the brand recognition and established business model that can help attract customers and drive revenue.
Additionally, many franchisors offer ongoing support, training, and marketing assistance to help you achieve success fast.
That said, the initial investment is a hurdle, and other factors like local competition can affect profitability.
Before you open a franchise, carefully consider the costs, revenue potential, and risks.
It also helps to get the advice of other professionals like attorneys and accountants so you have a full picture of the franchise’s viability for your location.
Requirements for Buying a Franchise
Each particular franchise has its own requirements. These requirements are put in place to help attract those who are most likely to succeed.
Here are some of the more common requirements you could encounter along this journey:
Franchisors often require prospects to meet financial qualifications like a minimum net worth or liquid capital.
Many franchisors prefer people with prior business experience, particularly in the same industry or a related field.
Franchisors may ask for personal or professional references to evaluate character, work ethic, and business acumen.
Application and interview
Prospective franchisees typically need to complete an application and interview process to evaluate qualifications and brand compatibility.
Legal and background checks:
Some franchisors require legal and background checks to ensure no prior legal issues or criminal history.
Again, these can change based on the industry as well as the individual brand, so keep an open mind and be flexible as you make your way through the process.
How Should I Prepare to Buy a Franchise?
Start with research to help you identify franchises that make sense for your situation and goals. You’ll also want to dig into the franchise’s history to figure out if the one you’re considering is likely a good decision.
Next, think about your finances. How will you fund your franchise location? Will you bootstrap this? Will you need a Small Business Administration (SBA) or other business loans?
Lastly, it’s a good idea to consult with an attorney, accountant, and even other franchisees who have already made the decision you’re thinking about making. These people can provide valuable insights into areas you might have overlooked.
How to Buy Multiple Franchises?
Maybe you want to own multiple franchises. In that case, you’ll follow most of the advice above, with a few additional considerations:
For instance, you’ll want to consider the time investment cost. Ask yourself how much time and money you’re prepared to invest. This is one of the biggest factors in your decision.
You’ll also want to think about how you’ll secure financing. Do you have the capital to afford this on your own or will you need a loan or some other form of funding?
To make the buying process as smooth as possible, you may want to enlist a team of professionals, including a franchise attorney, accountant, or even a business coach to help you work through any challenges.
Owning multiple franchises is a big task, but it can also pay off exponentially, so work closely with the franchisor and follow their guidance as you grow your empire.
Benefits of Buying a Franchise
If you’re considering a franchise business, you may already know some of the benefits, but there may be a few you haven’t yet considered.
- Established Business Model: Franchises come with proven operating procedures and a recognized brand that can help attract customers and generate revenue.
- Ongoing Support: Many franchisors offer training to help you operate the business effectively, including marketing, operations, and management support.
- Purchasing power: Franchisees can often access bulk discounts on inventory, supplies, and equipment through the franchisor.
- Reduced risk: Franchises offer a lower risk option for entrepreneurship since the processes and systems are already known.
- Access to a network: Franchises provide access to a powerful network of other franchisees offering advice, support, and best practices.
It’s called a “business-in-a-box” for a reason.
Although the initial investment is a challenge for some, the ability to follow a blueprint for success is highly desirable for most people.
Have you considered the iCode Franchise?
Okay, now that you know how to buy a franchise and the benefits of franchising…have you considered buying into the rapidly expanding iCode Franchise?
iCode is a STEM education franchise that offers robotics and coding school classes for children.
iCode is strategically situated in a growing industry that prepares kids for careers in the tech industry, offering an established brand, a comprehensive curriculum, and ongoing training and support.
Plus, iCode is a low-overhead business, and the initial investment won’t break the bank compared with other franchises.
Lastly, iCode delivers multiple revenue streams to help lift you up and make your business as profitable as possible.
If that’s what you’re looking for in a business, then take a look at iCodeFranchise.com to learn more about this franchise opportunity.