How to Start a Franchise

You should never try to start a franchise because you hate your boss. In this case it is advisable that you either: change the job or buy VB for your employer. The methodology on how to franchise a business is too complex to decide impulsively on the idea. At the same time it is a simple path for those who are really dedicated.

How to start a franchise? If you investigated this business options and you know what you want then the process is simple. All you need is an appropriate finance, legal advice and you are ready to roll. For others, the next few paragraphs will be very helpful.

The Customer Approach to How to Start a Franchise

Firstly, you need to investigate what is available. If you are after a specific type of the business then you need to narrow down options within this category. For example, there are many coffee-cookie franchises. The more established brands will charge the upfront fee in the order of $200K. The less known businesses will ask for about half that price.

Thus, you should put yourself in the shoes of the client before deciding on your choice. Does it really matter that Gloria Jean's Coffee is a more established business than Jamaica Blue? Which one will you choose to buy a coffee? Probably, it would not matter as both would serve the same quality product and both would have a similar number of customers. However, Gloria Jean is $100K more expensive than Jamaica Blue. Thus, the concept on how to start a franchise requires a detailed analysis.

How to Franchise a Business Using an Interview Process

You must be prepared to ask questions. The best time is during the interview process for which you should prepare a decent questionnaire. If you are about to ask 10 questions then you are either an expert or completely unprepared. In most cases 20-50 questions should summarise your concerns. Let's review some points:

  • How long has the franchisor been operating?
  • What is covered in the upfront fees?
  • How much are the running costs?
  • Are there any restrictions to sell the franchise in future?
  • How long is the training?
  • Is there requirement to pass the training?
  • What happens if I fail the training?
  • How much time is needed to setup the business?
  • Is there minimum gross income?
  • Are there any guarantees for the minimum gross income?
  • Does the franchisor provide an exclusive territory for each franchisee?
  • Can I choose my location or the franchisor decides?
  • What is the duration of the contract?
  • Can I sell products/services without franchisor restrictions?
  • Does the franchisor provide the product?
  • Who are the competitors for the business?
  • What is the plan of the franchisor to successfully tackle the competition?
  • What are the penalties for breaching the quality of the service?
  • Is the franchisor a member of Franchise Council of Australia (FCA)?
  • Is there a code of conduct and/or terms and conditions?
  • Does the franchisor projects an income level for the particular site?
  • What kind of market research has been done to evaluate the income for each site?
  • Does the franchisor help with the setup of the business?

and many more... Thus, the question: "how to start a franchise" needs answers to as many concerns as possible.

The Money You Need to Start a Franchise

Ok, you decided on the franchise you like. Now, let's review the budget. A lot of people think that the upfront fees and the first 2 months of running costs decide on the budget. They incorrectly believe that the business cannot run into losses. Unfortunately, this simplistic approach causes many tears and pains.

The franchisor (who does not take a risk here) often tells that a hard work and a good attitude will bring the needed success. However, the economic stagnation, competition, change of the technology are external forces to press the business down. You have to be prepared for tougher times. If you decide that your living budget will help to fill in the holes in the business then you are bound for trouble. You must dedicate enough money for your business to withstand at least 1 year of losses.

This means that the total cost is the sum of:

  • Upfront fees
  • Supply costs
  • Administrative fees (if included in the contract)
  • Running costs for at least 1 year

The rule of thumb is that $300K business requires $600K-$700K of the investment to succeed.

How to Franchise a Business and The Legal Matter

You have researched your dream franchise, you have got the money and you are enthusiastic about the business model. However, you also need a legal advice. The business itself can be great but it is the contract which can ruin your choice.

You should never sign the contract without the legal advice. A decent lawyer will cost you money but it will be worth it. $300 for the advice of a good lawyer is better than $300K invested into an uncertain future. Thus, the question: "how to start a franchise" cannot be answered without the legal representation.