Are you looking to start your own business? Of course—that’s most likely how you arrived here.
But getting a business off the ground and running it efficiently can be a struggle. There’s financing, branding, licensing, marketing, and customer service to think about. And it can all seem overwhelming if you’re inexperienced or going into a saturated market.
What if there was a way to start a business and take away many of those concerns?
An entrepreneur can start a business with a proven business model already in place by investing in a franchise. And with hard work and dedication, it’s possible to open multiple locations following a blueprint built for success quickly.
This article will explore how to become a franchise owner and break down the paths to, risks, and benefits of owning your own franchise.
What Does a Franchisee Do?
Let’s start with the dictionary definition.
A franchisee is an individual who purchased the rights to use the proprietary knowledge, brand, and trademarks of an existing business. A franchisee may sell products associated with that brand under the same name. They’re the owner and independent operator of a franchise.
But because they own a franchise, franchisees have to follow guidelines and rules set by the franchise when running their business. And in most agreements, they must pay ongoing royalty or franchise fees and percentages of the total revenue to the franchisor.
For example, you can’t buy a McDonald’s franchise and start selling Italian food or change the logo without the written consent of the McDonald’s brand—Yes, we know McDonald’s used to sell pizza—but you can’t do it under their name without permission. Also, Mcdonald’s requires franchisees to pay 4% in monthly sales along with other franchise fees.
Under a franchise, there are key responsibilities for a franchisee such as:
- Operating the business within the brand’s standards and protecting the brand.
- Generating a customer base by offering excellent customer service while providing only brand-approved products and services.
- Training all employees according to a brand’s standards while ensuring every location is fully staffed.
- Advertising and promoting the business according to franchise guidelines.
How Do I Become a Franchise Owner?
While it may seem simple on paper, becoming a franchise owner is a serious business endeavor that calls for hard work and business savvy. You can’t just walk into Burger King, 7-Eleven, or Marriott and expect to be approved to use their brand.
Funding a Franchise
Before starting a franchise, the most important factor in determining is the cost or amount of investment you’ll need to buy into the business. It varies by the franchise, but you can expect to pay anywhere from $150k up to $3 million or more. And those fees could be inclusive or separate from the real estate costs.
With that information, it’s essential to figure out exactly how you’re going to pay for the investment. Some lenders and franchises offer financing options, but much of the initial investment funds will come from your own pocket.
An alternate option is to look into a business loan from the U.S. Small Business Administration (SBA). They offer a wide range of government-subsidized programs that help entrepreneurs get their business off the ground.
Research to find the right franchise for you
Once you have your funds set up, the next thing to do is find the right franchise. Not all franchises are built the same, so it’s important to investigate the type of franchise and the rules and guidelines before investing.
For example, if you have an affinity for coffee, it’s in your best interest to look into coffee franchises as you’re more likely to enjoy the day-to-day operations. However, if the coffee franchise you’re looking into requires a 15% monthly royalty fee, it’s probably not a good investment.
It’s wise to work with a business attorney and accountant specializing in franchising before making any investment. This way, you’ll have a better understanding of your legal and financial obligations from the start.
Last, real estate and demographics play a huge role when selecting a franchise. Research franchises are willing to let you set up at a solid location full of traffic and in an area containing the business’s primary demographic.
Tips on Becoming a Successful Franchise Owner
It takes more than money and a good business plan to become a successful franchise owner, so let’s look at two key tips to help you make your franchise a success.
Have Small Business or Startup Knowledge and Adaptability
If you have corporate business knowledge, that’s great! You have an idea of how to run a business within a system and probably understand basic operations.
However, prospective franchisees should know that they won’t have many traditional support structures offered by working for a corporation. That’s not to say franchises don’t offer support, but don’t expect a direct line of communication to help you do everything step-by-step.
Franchises expect owners to be self-reliant and able to take care of basic business functions like hiring, maintenance, supply ordering, etc. The business model is in place, and suppliers are pre-selected, but it’s the small business owner who makes it happen week-in and week-out.
Successful franchise owners can adapt to these roles and any new guidelines that come from the franchise.
Follow the Rules of the Franchise
While you need small business skills to run the business, it doesn’t change the fact that you’re running a franchise. That means that the franchisor sets the rules and standards for the brand. As a franchise, you’ll be legally obligated to use the procedures and advertising from a brand and most likely have to abide by any sales and discounts advertised.
If you cannot meet their standards and guidelines, you risk breaching the franchise agreements, which may come with fees and other legal penalties.
That may not sit well with you as an aspiring entrepreneur, but remember that franchises are successful because they follow a particular business model. It’s in your financial interest to always follow the guidelines to create a successful franchise venture.
What are the Risks Associated with Being a Franchise Owner?
No business enterprise comes without risk, so let’s examine a few of the key risks associated with being a franchise owner.
- If the brand loses equity, so does your business.
With any business, things happen that are out of the control of the owners. But with a franchise—especially national franchises—there are more opportunities for things to go wrong at other locations or at a corporate level that can have an adverse effect on the brand.
For example, if you own a fast-food franchise, and there is an incident of foodborne illness affecting restaurants in another state, it could affect your business. Should the incident receive national attention, it could steer customers away from your business.
2. Financial decisions at the corporate level affect you as a small business owner.
If you’re a fully independent business owner, then any decision you make affects your business. But in a franchise, things work differently. Financial decisions made at the corporate level can have negative consequences for your business.
A classic example of this is with Krispy Kreme doughnuts. Once considered a prime franchise opportunity, Krispy Kreme isn’t on the ‘top franchise business’ lists like it once was.
Decisions at the corporate level to over-expand the business can result in loss of quality and oversaturation of their locations. As a result, many locations closed, and people who invested in the franchise lost money.
Before investing in any franchise, be sure to research the outlook and company vision to see if it’s viable and in line with the risk you’re willing to take as an investor.
Benefits to Being a Franchise Owner
While there are some risks or negatives to owning a franchise, there are a lot more benefits.
- Franchises have a low failure rate for small businesses.
- Many franchises are turnkey operations that offer business assistance for life. You may take care of the operations, but there’s always help when needed.
- Supplies cost less because of the buying power of the business as a whole.
- Most franchises already have large-scale brand recognition and a loyal customer base. You don’t have to spend as much on advertising to get customers in the door.
- Franchises can be very profitable if they run well and with the right location regardless of the fees.
How Much Can a Franchise Owner Make a Year?
A quick online search for franchise owner salaries can range from $50k to $250k and up to a million annually. The truth is that there’s no set earnings amount when running a business. It all depends on the franchise, the business location, and how well the owner runs it.
The best way to understand how much you can make with a new franchise is to do your research and gain some insider information about the business. Talk to current owners in the franchise and tactfully ask about the business. Find out what problems they’ve come across, how they dealt with them, and what support they received from the franchisor.
Buying into a franchise is just like an investment in any business. You must do your research, carefully plan, and figure out how to finance the operation.
However, with a franchise, you mitigate many of the risks of starting a business independently. Even with the fees, franchises provide a blueprint for a successful business with solid branding and supply chains already in place.
For anyone looking to start a new business, becoming a franchise owner is a positive step towards becoming your own boss.