When it comes to establishing a franchise, you’ll often find that food establishments are often amongst the most popular options for many people. The fast-paced life, and the potential avenues for growth that these opportunities offer for those with the guts to go for it.
What’s not to love about it? Many of us have likely heard at least one or two success stories when it comes to franchises taking off for those brave enough (or wealthy enough) to make those initial investments worth the time and energy.
However, many of us have also likely heard of a few cautionary tales about franchises not going quite as planned. For every story of a restaurant franchise taking off, it feels like there are countless more that burn out before they can take off.
Or, in the worst cases, crash and burn in the most spectacular fashions imaginable. So, that is what we are here to cover for you. In this guide, we will give you a brief outline as to what exactly franchises are, as well as how to start them for yourself with a broad step-by-step outline that you can use for yourself.
What is Franchising?
So, before we get any deeper into this topic, we should probably first outline what exactly franchising is in the first place. After all, no sense in explaining something that you’re not completely caught up with, is there? Franchises are a system that allows for the distribution of specific services and/or products that are under a particular recognized brand name or brand mark.
Franchises, and franchising as a whole, can be split into 2 sides of the business agreement:
The franchisor, who will front much of the initial costs that it takes to get a brand name or trademark off the ground into a viable business system.
The Franchisee, who will often pay a royalty to the franchisor, alongside an upfront fee initially, to work as a partner of the franchise as a whole.
It should be noted that technically speaking, a ‘franchise’ actually refers to the agreement in itself, rather than the wider practices of establishing a business. However, when we refer to franchising, we are often still referring to the process in itself, so we will continue using the term as we have so far already.
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History of Franchises
The concept behind franchises, that two different parties share in the investment and profits of a business through a mutual agreement, has been around for quite a while, at least as far back as the 11th century. However, franchising as we know it today is a relatively young tradition that got its start in the United States, around the mid to late 19th century.
However, it wasn’t until after the second world war that we saw the first big boom in franchises taking off. One of those relatively early success stories is a very well-known chain of restaurants, McDonald’s. That’s right, the fast food giant started as a franchise between Ray Kroc and several individual restaurants! So, as you can see, restaurant franchises are a tried and true method of making good business decisions!
Steps to Franchising
So, we’ve covered the groundwork of what franchises are. Now we can get to the part that you are here for: Starting a franchise business for yourself! Now, the process of franchising will look a little different for every business that starts as a franchise. However, there are a few key steps that you should be keeping an eye out for when setting up a franchise.
1. Budgeting & Finances
It is the thing that makes the world go around, and the same is true for franchises, for them more so than others. Every franchise is going to need some kind of budget to start with, and will often be the factor that can make or break a franchise early on.
All franchisors in the franchise are mandated by the Federal Trade Commission to provide their franchisees with some kind of disclosure agreement.
This agreement will outline any specifics that need to be covered and understood by both parties, including the fees for royalties and advertising, as well as any restrictions that franchisees have on buying supplies, equipment, or other items from outside their business.
This is often the block that many people will struggle with at first. Trying to break even can be one of the most difficult things to try and accomplish, which will require plenty of budgeting early on. However, if you can set up a franchise, the businesses that you will be creating will likely prove essential, as that network of support will help cover some of the losses before (hopefully) they start becoming more profitable.
Right next to budgeting, fees are an incredibly vital part of starting a franchise, and the exact amount can vary depending on the agreement, with fees ranging from $6,000 to $36,000 and above. These fees usually cover the startup costs of a franchise, from the land needed to build a restaurant, to equipment and construction. This is usually paid over time, however, to spread that upfront cost.
3. Placement in the Market
This is another vital step, as an optimal location for the franchise will likely also play a massive role in whether or not the business will be able to break even quickly enough to offset the costs of setting itself up. Making sure that there is a good mix of potential clientele and customers, as well as very little direct competition (restaurants that aren’t selling the same types of products would likely not count as direct competition), is essential.
Making further partnerships between different franchises is essential for your franchise to stay afloat, such as supplying products that a business may need for its operations.
As you can see, setting up a franchise is no small feat. It takes excellent business management to stay afloat early on, as well as plenty of cash. However, with the right decisions being made, the sky is the limit!