Starting a franchise can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful franchise.
Importantly, a critical step in starting a franchise is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Franchise:
- Choose the Name for Your Franchise
- Develop Your Franchise Business Plan
- Choose the Legal Structure for Your Franchise
- Secure Startup Funding for Your Franchise (If Needed)
- Secure a Location for Your Business
- Register Your Franchise with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Franchise
- Buy or Lease the Right Franchise Equipment
- Develop Your Franchise Marketing Materials
- Purchase and Setup the Software Needed to Run Your Franchise
- Open for Business
1. Choose the Name for Your Franchise
The first step to starting a franchise is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your franchise:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your franchise.
2. Develop Your Franchise Business Plan
One of the most important steps in starting a franchise is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your franchise.
- Company Overview – this section tells the reader about the history of your franchise and what type of franchise you operate. For example, are you a business format, a product, or a marketing franchise?
- Industry Analysis – here you will document key information about the franchise industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your franchise? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your franchise make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Franchise
Next you need to choose a legal structure for your franchise and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the franchise and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a franchise together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a franchise include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a franchise is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your franchise, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Franchise (If Needed)
In developing your franchise business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a franchise to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a franchise that they believe has high potential for growth.
5. Secure a Location for Your Business
When looking for a franchise location, there are a few things you’ll want to keep in mind. First, you’ll want to find a location that is accessible and visible to your target market. You’ll also want to make sure the area is affordable and has the necessary zoning and permits. Finally, you’ll want to make sure the location is suitable for your business model.
6. Register Your Franchise with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your franchise’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your own business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
To start a franchise, you’ll need a business license and a permit from the state or local government. You may also need a trademark or copyright license. Contact your local government or business licensing agency to learn more.
10. Get Business Insurance for Your Franchise
The type of insurance you need to operate a franchise will vary depending on the state as well as the scope of your operation.
Some business insurance policies you should consider for your franchise include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Franchise Equipment
The equipment you need to run your franchise will depend on the type of business. For example, if you have a fast food franchise, you will need a kitchen with cooking equipment. If you have an administrative franchise, you will need office equipment such as a computer and printer.
It is important to consult with your franchise broker to determine the specific equipment you will need to run your franchise. Your franchise agreement should include this information. In addition, your franchisor may provide a starter kit with some or all of the essential equipment you need.
12. Develop Your Franchise Marketing Materials
Marketing materials will be required to attract and retain customers to your franchise.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your franchise. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional franchise website provides prospective franchisees with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your franchise.
13. Purchase and Setup the Software Needed to Run Your Franchise
The software you need to run a franchise depends on the type of business. For example, you will need software to manage your inventory and sales for a fast food franchise. If you are starting a service franchise, you will need software to help manage your customer relationships and appointments. No matter the type of franchise, you will need accounting software to manage your finances. You may also want to invest in some software that can help you with marketing and website design.
14. Open for Business
You are now ready to open your franchise. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Franchise FAQs
The answer to this question depends on a number of factors, including the type of franchise agreement you are interested in and the amount of money you are willing to invest. Some franchise businesses are easier to start than others, so it is important to do some research before making any decisions.
However, if you follow the steps above, you should be able to start your franchise without too much difficulty.
There are a few things you can do to start a franchise with no experience. You can research the industry and learn about the different types of franchises available. You can also attend franchise expos and meet with franchisors, franchise brokers, and franchise consultants to learn more about their businesses. You can join a franchise network or support group to get advice and tips from experienced franchisees. You can also consult with a franchise attorney to help you understand the legal requirements of owning a franchise.
If you're still not sure if owning a franchise is right for you, consider attending a free seminar offered by the International Franchise Association. IFA seminars provide an overview of the franchising process and include a panel of experts who can answer your questions.
There is no one-size-fits-all answer to this question, as the most profitable type of franchise will vary depending on the industry and market conditions. However, some of the most profitable types of franchise opportunities include food franchises, retail franchises, and service franchises.
It can cost anywhere from $10,000 to $100,000 to start a franchise system. The amount you'll need to invest depends on the type of franchise, the size of the territory, and the level of support and training provided by the franchisor.
The startup cost typically includes the initial franchise fee, training costs, marketing expenses, and the cost of setting up your business operations. Additional expenses may include leasehold improvements, equipment purchases, inventory, and signage.
The ongoing expenses for a franchise can include things like royalties, marketing fees, and national advertising. It's important to factor these costs into your budget when you're considering purchasing a franchise. You'll also need to budget for things like the cost of goods, labor, and rent or property taxes. Talk to the franchisor about their typical expenses so you have a realistic idea of what you'll be paying each month.
A franchise owner can make money in two ways: by selling products or services to customers, or by collecting franchise fees from other businesses that use the franchisor's trademarks and methods. Franchises can also make money by leasing property to the business. In this case, the franchisor will usually receive a monthly payment, and the business will be responsible for all of the property's expenses.
There are a number of reasons a franchise opportunity can be profitable. Franchise companies have a proven business concept that has been tested over time. Franchisors usually offer support and training that can help new franchisees become profitable. Additionally, a well-run franchise can provide a steady stream of income from franchise sales.
There are many reasons franchise owners can fail. Some of the most common reasons include a lack of proper planning and research, a failure to understand the target market, financial mismanagement, and incompetent or unethical leadership. When these or other factors lead to a decline in sales, the franchise can be forced to close its doors.