How to Buy a Franchise and Make it Work for You

If you want to open a small business with an existing customer base, you might be wondering how to buy a franchise. After all, opening a franchise can come with a lot of perks that you might not receive with a non-franchised business.

But with so many types of franchises and different business models, where should you start? And how do you select a model that’s right for you? 

What is a franchise?

A franchise is a business model where individuals (franchisees) operate their own business under the brand and system of an established company (franchisor). This setup allows you to leverage the brand's reputation, proven business model, and support systems.

Franchises span various industries, giving you plenty of options to find one that aligns with your interests and expertise. Let’s dive into the world of franchising and what to consider before you franchise a business.

Types of franchises

Understanding the different types of franchises helps you decide which one suits your goals and resources best. Here’s a guide to the different types of franchises. 

Job franchises

These are typically small-scale, home-based franchises. They require a lower initial investment and are often run by the owner alone or with a small team. Examples include cleaning services and mobile repair businesses.

Product franchises

In this model, franchisees sell and distribute products. Think of car dealerships or vending machine routes. The franchisor supplies the product, and you handle the sales.

Business-format franchises

The most common type of business franchise, where franchisees operate using a business model provided by the franchisor. This includes everything from marketing plans to operational guidelines. Fast food chains are one example. 

Investment franchises

These are large-scale investments, often requiring significant capital. They usually involve real estate and large facilities, like hotels or fitness centers.

Conversion franchises

Existing businesses rebrand under the franchisor’s name. This type is common in real estate and plumbing industries. It allows businesses to leverage the franchisor’s brand while maintaining their operations.

Benefits of buying a franchise

You might wonder, why buy a small business franchise instead of starting a business from scratch? Here are some compelling reasons.

• Established brand recognition: One of the biggest advantages is immediate brand recognition. Customers trust established brands, which can lead to quicker business growth.
• Proven business model: Franchises come with a tried-and-tested business model. This reduces the risk compared to starting a new business, as you’re following a blueprint that works.
• Training and support: Franchisors provide comprehensive training and ongoing support. Whether it’s initial training to get you started or continuous support to help you grow, you’re never alone in your journey.
• Marketing assistance: Franchisors often handle national and regional marketing campaigns, saving you time and effort. This can include everything from TV ads to social media strategies.
• Shared resources: Franchisees benefit from bulk purchasing and shared technology. This can lower your operational costs and give you access to better tools and resources.

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How does the franchise business model work?

Before buying a franchise, it’s important to understand how the model works. The relationship between the franchisor and franchisee is symbiotic but comes with its own set of rules.

• Franchise fees and royalties: You’ll pay an initial franchise fee to get started and ongoing royalties based on your sales.
• Operational guidelines: Franchisors provide detailed operational guidelines to ensure consistency across all locations. This includes everything from store layout to customer service protocols.
• Support systems: Franchisors offer various support systems, including training, marketing, and sometimes even HR support.
• Compliance: You must adhere to the franchisor’s standards and policies. This ensures that the brand remains consistent, no matter where the franchise is located.

Understanding these elements helps you navigate the franchise landscape more effectively and make informed decisions.

Steps to buy a franchise

Buying a franchise can feel overwhelming, especially with so many steps involved. But don't worry — we’re here to break it down into manageable chunks. Here’s your roadmap to owning a franchise.

1. Evaluate your financial situation

Before diving in, assess your financial health. Determine how much capital you have available and what you can afford to invest. This isn't just about the initial franchise fee; you need to think about your first year of business operations. Consider ongoing royalties, marketing fees, and working capital for day-to-day operations.

2. Research franchise opportunities

Start by exploring various franchise opportunities. Use franchise directories, attend expos, and read industry publications. Look for franchises that align with your interests and expertise. 

3. Contact franchisors

Once you’ve shortlisted potential franchises, reach out to the franchisors. Request their Franchise Disclosure Document (FDD). This document contains crucial information about the franchise, including fees, legal obligations, and financial performance.

4. Review the FDD carefully

The FDD is your holy grail. Pay close attention to:

• Fees: Initial franchise fees, ongoing royalties, and any other charges.
• Obligations: Your responsibilities as a franchisee.
• Financial Performance: Historical data on franchisee earnings.

5. Attend Discovery Day

Discovery Day is your chance to visit the franchise headquarters, meet the team, and get a behind-the-scenes look at the operations. It’s a crucial step in evaluating whether the franchise is the right fit for you.

6. Secure financing

Explore various financing options. The Small Business Administration (SBA) offers sba franchise loans specifically for franchise purchases. You may also consider a small business line of credit, small business grants, other traditional loans, and personal savings. Make sure you have a solid financial plan in place.

7. Hire a franchise attorney

Don’t skip this step. A franchise attorney will help you understand the legal implications of the FDD and franchise agreement. They can also assist in negotiating better terms.

8. Sign the franchise agreement

Once you’re satisfied with all the terms and have secured financing, it’s time to sign the franchise agreement. This formalizes your relationship with the franchisor and sets the stage for your new business venture.

How much does it cost to buy a franchise?

If you want to buy a franchise, how much it costs is probably the first question you have. While individual franchises will differ, here are some fees you’ll definitely want to factor into your budget:

• Franchise fee: This is the initial cost you pay to the franchisor to use their brand and business model.
• Operating costs: These include ongoing expenses such as rent, utilities, and salaries. Additionally, the investment required for a franchise location includes costs like leasehold improvements, equipment, and initial inventory.
• Royalty fees: These are ongoing payments to the franchisor, usually a percentage of your revenue.
• Marketing fees: Contributions to the franchisor’s marketing fund, which helps promote the brand nationally.

All these costs are why you’ll want to create a comprehensive business plan that factors in the additional cost of franchising.  

How Homebase can help your franchise grow

Once you’ve purchased your franchise, the hard—and exciting!—work begins. In order to start your business, you’ll need to hire and manage a team that can support your dream. 

Homebase takes the chaos out of small business operations by offering an all-in-one solution for hourly teams, with tools to handle scheduling, payroll, time clocks, and even team communications and HR and compliance. 

Starting a franchise can be overwhelming, but managing your team doesn’t have to be. Let us do the heavy lifting. Get started for free.