Learning the procedures in franchising is the first step to owning a franchise business. The importance of gaining such knowledge will mold you to make the right decisions on whether to invest or shop around for other franchise opportunities. How does investing in a franchise work?
Owning a franchise is not only about choosing a business you would like to operate. It should also be a perfect fit for you, personally and financially.
Part of the investing process is to understand the system a company is implementing. Check their business plan and marketing strategies. Make sure that those are something that you can work on.
Though franchisors are unique in their own business techniques, they all are on the same ground and goal. Each franchise company follows standard franchising procedures. How was that possible? History made it happen.
How franchising begin?
European governments and their corporations brought franchising to the United States during the 18th century. Its influence marked a huge development up to America’s industrial revolution. For example, Benjamin Fraklin owned a franchised printing press business in 1731. Years after that, he already has multiple franchisees.
In between the 1850s and 1900s, franchise businesses started to expand in the country. From printing operations, new franchise companies in chemical production, machine manufacturing, and other goods are operating across the US. The economic development was indeed growing.
One good example of original American franchises is the Coca-cola company and Mcdonald’s. These two franchise giants are expanding not just in the nation but also internationally.
For instance, the well-known beverage acquired more than 500 distribution branches worldwide. While the fast-food giant – Mcdonald’s – already has more than 39,000 locations in 2020.
More to that, the franchise industry gave a blast in the United States after World War 2. Examples of franchise businesses that started to operate are:
- convenience stores,
- cosmetics companies,
- automotive and services,
- accounting firms,
- and glasses fabrications.
What franchising did in our country is proof, that company owners and franchisees can be both successful and be economically helpful. During these modern times, the concept of franchising hasn’t changed.
How Investing in A Franchise Works? - 4 Steps
As history shows that franchising was a good business opportunity, it is still an excellent choice to invest in nowadays. As a matter of fact, more and more Americans are coming in to start a business in the franchise industry. They see how advantageous it is to own franchise business.
So, how does investing in a franchise work? Here are the steps if you want to understand the entire process.
Getting to know the franchise system
A franchise system starts with the relationship between the company owner or the franchisor between the potential distribution investor or franchisee. With the franchise agreement and a purchasing price, a franchisee will receive the right to use the brand name, product, and trademark.
Becoming a franchisee also means following the company policies about operating the business to ensure and maintain the quality of the product or service.
In a franchise system, the contract lasts for an average of 10 to 20 years. When the franchise agreement expires, a franchisor can let the franchisee renew their commitment.
One most important parts of the franchise system are the training and support program of a franchisor. Before opening a business, a franchisee and its team will undergo compulsory training.
The goal is to guide the franchisee to develop leadership skills and to help the team to produce quality products or services.
Normally, a franchise system depends on a company’s business model. In franchising, there are 4 major business models:
- Company Owned Company Operated (COCO). The company owns and runs the business in a specific location.
- Company Owned Franchise Operated (COFO). The franchise company will shoulder most of the expenses like property deposits and other expenses. One good example of a COFO franchise model is a cafeteria in a company-owned establishment.
- Franchise Owned Company Operated (FOCO). Opposite to COFO, in this business model, the franchisee will cover the expenses while the franchise company will operate the business.
- Franchise Owned Franchise Operated (FOFO). Here, the franchisee does all - to provide capital, pay for operations expenses, and manage the entire franchise business.
Read this blog: “Can a Franchise Be Operated as an LLC?”
Find the Right Franchise Opportunity
As you step up to a franchising career, it is important to find a franchise opportunity that is right for you. Below are the steps on how you can find one.
1. Measure your goals.
In the first place, why do want to own a franchise? Define your goals by making a self-check into what motivates you in pursuing a career in a franchise opportunity.
2. Compare other franchise business options.
Do not focus on one franchise model based on your preference. Looking for other options will make you realize how wide your opportunities are. By doing this, you’ll know which is exactly right for you.
3. Meet some franchisees.
Making initial contact with the existing franchisees is a good way for you to be on their shoe. Talking to them means you’re heading out how to be one of them. The experience will discern whether it is a business type that fits you well.
4. Learn the franchise processes.
Each franchise company has its own style of handling business partners. Learning their processes in managing franchisees will help you analyze if that certain company meets your level of expectation.
5. Evaluate the FDD.
The Franchise Disclosure Document consists of information about the franchise company. It is a legal document that tells you its history and its status financially and as a whole.
6. Attend the franchise discovery day.
In this event, you will meet the franchisor and the corporate team in the company headquarters. Attending the discovery day will help you decide if a certain franchise business is a perfect match for you.
Buy the franchise of your choice
Owning a business that you’re passionate about doing is essential in choosing a franchise. Though it is not enough basis to reach success, purchasing the franchise of your choice will make you get along with the operation. Consider the steps below in buying a franchise.
- Pick a franchise business that will lead you to your target goals. Take your time before making any decisions.
- Review your financial capabilities. Make sure that your prepared capital is enough to suffice your expenses in buying and starting a franchise business.
- Evaluate the franchise company’s capabilities and sustainability.
- Remember that the condition of the company will affect your business growth and development.
- To avoid a financial shortage, make a backup plan. You can communicate with some lending corporations in case you need financial help. It will help you prevent delaying the buying process.
- Understand the franchise agreement before signing. In buying a franchise of your choice, you must know and understand the policies to ensure that every detail is clear to you and the franchisor.
- Comply with the needed requirements.
- To finally own a franchise business, of course, you have to submit all the requirements to start the business operation.
Opening your franchise business
The most exciting part of the franchise ownership process is the grand opening of your business. To facilitate a perfect launching day, follow the easy steps below.
- Incorporate the theme on your opening day with your target market. Let’s say that your business is a daycare franchise. Of course, you will send invites to those you think are parents of infants and toddlers.
- A soft opening can be helpful. Instead of organizing a huge event, a soft opening will still attract your consumers. Besides, your business is already from a known brand. Hosting a huge grand opening may not be necessary.
- One strategy to engage with your target market is to form a sort of promotion, giveaways, or free samples. For example, if you’re opening a coffee shop, you could offer a discount or a free taste on each flavor you’re selling.
- Hire a social media influencer or make an advertisement on social media platforms. These are the trending ways nowadays to promote a product or a service. Take advantage of technology to reach a wide number of your target market.
- Keep everything organized. Being organized with your preparations will reflect a positive outcome on your grand opening day.
Make Your Way to Investing in a Franchise Business!
The franchise industry has gone so far from when it started. It evolves as economic growth continues to demand more of its participation. Across the globe, franchise businesses prove to promote financial security and life stability to more people.
As more are getting interested to own a business, you can make your way to investing in a franchise successful. Why suffer the kind of life corporate America is causing you if you have the best option to produce an income of your own. By owning a franchise business, you will have a quality life that every American is dreaming of.
One way to step forward to a franchise investment is your determination to switch careers and start a new chapter of a money-making business. Once you’re ready, research a franchise business that you want to own. From there, follow the procedures in purchasing the best fit for you.
Starters in the franchise industry find the processes easy with the help of a franchise consultant. There are a lot of them but it is important to choose a well-experienced one. How to pick the right franchise consultant? Do a background check and go to the highly recommendable one.