From selecting a franchisor to signing a contract, here’s what you need to know
Getting started as a franchisee requires some legwork. First, you have to select a franchisor that is a good fit for you. What kind of business are you interested in? Do you want a step-by-step playbook for running your franchise, or more freedom to make it your own?
Determine how much you can invest. There will be an upfront franchise fee. How much can you afford at the outset? What are you getting in exchange for that fee?
Do Your Homework
Once you have an idea of the franchisor you want to do business with, vet that company as well as you can. Look into their profitability. Speak with current franchisees to gain their perspectives on how much support the company offers. Ask the franchisees what the process is like and if they would still sign on with the franchisor if they had the chance to do it all over again.
Especially if you’re applying for a bank loan, you need to come up with a business plan. You should anyway, but it will be required to secure a loan. Ask the franchisor what information and financial figures it can provide. You’ll need to take a good, hard look at how you’re going to turn a profit and how long that that will take in order to justify the investment to a bank, and to yourself.
Before you and the franchisor commit, you need to interview each other. You’ll have questions for the company, and the company will have questions for you. During this interview process, make sure expectations are set so that you have a clear idea of the requirements on your end and what you’re getting in return. This is the time to hash out details on continuing training, software, etc. Is there a regularly scheduled convention of franchisees to exchange ideas and best practices?
The Franchise Agreement
Assuming you’re ready to move forward, it’s time to sign a franchise agreement. It will stipulate the initial franchise and any management and advertising fees, the length of the deal, and how to renew or terminate the contract when the time comes. It will also spell out rules on any patented or copyrighted materials or processes — say a special technique the company uses or a restaurant chain’s secret recipe — possibly including non-disclosure and non-compete clauses.
The agreement will also include details on equipment and technology the franchisor will provide and what you’re responsible for yourself. It will lay out ground rules for preserving accounting records and for hiring practices.
Perhaps most importantly, the agreement will contain terms on the franchise location. Will you purchase or rent the space, or will the franchisor buy it and lease it to you? Obviously, both parties want the building to be easily accessible and visible to the public, so determining a location is key. Also important are the design and outfitting of the location. Franchises have brand standards they’re looking to uphold, and for many that includes specific details about how the location looks. While some franchises might not necessarily want every location to be exactly the same, many prize uniformity because it makes the brand instantly recognisable to potential customers.
Get to Work
Congratulations, once you’ve signed a franchise agreement, you’re the proud owner of your own business! Now the real work begins. Put your business plan into action, hire quality staff, and get selling. Your franchisor will be there to help you along as questions arise, and you can utilise the full network of fellow franchisees for advice as well. Remember that the franchisor is your business partner, and in order for the franchisor to succeed, you have to succeed, so it’s in their interest to provide as much assistance as you need. Good luck!
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