Last Updated on May 24, 2021
Starting a franchise can be extremely complicated, that is why others prefer to look for a franchise for sale, but we’ve taken a bit of the pressure off. Read more on how to start a franchise here.
How to Start a Franchise
People are often confused on how to start a franchise and the benefits they can get from it. In its most basic form, a franchise is an authorization to sell a company’s goods or services in a particular place. Franchising is said to be the continuing relationship where the franchiser provides a license for carrying out a specific business. The franchisees are also provided with the assistance to organize, train, market, and manage the franchise in return for monetary consideration.
Franchising is considered to be one of the most flexible methods for the distribution of products and services. The franchiser provides support and training to the franchisee to know how to start a restaurant franchise and run a business that makes the use of the franchiser’s systems and trademark.
In the franchising process, the franchiser makes training available for the person wanting to know how to start a restaurant franchise. Sometimes, management for the new unit to carry out the daily operation is also provided by the franchiser to the franchisee. At the initial stage when the business has just started, the franchisee is generally required to pay an initial fee and also royalty for using the trademark.
Frequently Asked Questions
Who has the opportunity to obtain a franchise?
Franchising is considered to be a more streamlined way for carrying out one’s business compared to starting one on your own. A prospective franchisee must have the desire to carry out their own business, the determination to make the business work, and the capabilities necessary to make it through the process of application. Any type of business can be franchised that sells products or services at wholesale or retail, from a person’s home or through retail stores.
Not all concepts are right for the franchise model however. The concept idea must be clear. Franchising can be made available for almost all businesses, be it accounting services, restaurants or weight loss centers.
How can we tell if our business would be right for franchising?
Most businesses are eligible for being franchised but the paramount issue that should continually be on one’s mind is that to become successful, selling the franchises and providing training to the franchisees is important. The business must be adequate for running the franchise on two distinct levels. Not only having information on how to start a restaurant franchise is important, it is also necessary for the business to be attractive for the prospective clients who might consider buying the franchise and it must also be unique and stand out in the competitive marketplace.
Who can help in making the decision whether to franchise or not?
There are franchise attorneys, franchise development companies as well as franchise consultants who can help a person in reaching a decision whether they should franchise or not. These types of people can provide adequate information on how to start a franchise. A Franchise Lawyer specializes in the laws governing the offerings of a franchiser and are the best resource to tap for legal questions about incorporation and responsibilities. They help in evaluating new franchising offers, reviewing of the offer circulars as well as the disclosure statements and assist in preparation of agreements. The attorneys can also negotiate the terms with franchisees in regards to purchasing a franchise from an established firm.
Though the franchise attorneys guide people on how to start a restaurant franchise, the franchiser and franchisee must be clear that the advice given by attorneys is just their opinion and not a guarantee. It is essential for the franchisee to take their opinions as only estimations and not fact.
Whether to start a franchise system- how to decide
Whether a person should begin with a franchised business or not can sometimes be a difficult decision to make. It is essential for the person to have a strong commitment towards the business as well as franchisees as it involves risks. Before beginning a franchise business, it is essential to have adequate knowledge on how to start a restaurant franchise from many sources.
Beginning with a new franchise requires money spent as well as a great of time setting it up right the first time. It might take a few months or years to recover the costs but in the end the person will gain experience on how to start a restaurant franchise and be able to see their franchised concept grow. Existing business also needs to be given adequate attention while the owner begins the process of starting a new franchise.
The most difficult part of a franchise system is selling the first franchise. Once the first franchise is sold, the franchisee will be largely dependent upon the franchiser to help them run their business well. The franchisees look to the franchiser as the expert who has all of the essential information on how to start a restaurant franchise unit successfully.
There are some potential franchisees who invest their retirement funds or complete savings in buying a franchise. They will have to bear substantial losses if the franchise is not successful. There are great risks involved in the franchise business, so it is essential that the franchiser as well as the franchisee know how to start a restaurant franchise and comply with all obligations in the franchise agreement.
Since there are risks and responsibilities involved not only to the employees but to the customers of the franchise, there are a few things that can be helpful for a person in knowing how to start a restaurant franchise and whether to start a franchisee or not.
Searching for information on various web sites as well as reading books related to franchising are some of the best ways that people can gain the knowledge on how to start a restaurant franchise and the various steps involved in the franchising process. Reading about successful franchisers is also a great way to learn relevant tricks of the trade. With the information obtained from other successful franchisers’ past experience, a person can get insider information to some of the best ways on how to start a restaurant franchise.
If you have the chance, talking to franchisers and getting their experiences directly from them is a great way to learn firsthand how to start a restaurant franchise. Preparing a business plan is also one of the best ways to analyze whether it makes financial sense to start a franchise or not.
3. GETTING STARTED
What are the essentials for beginning a new restaurant franchise?
There are a few key components that the franchiser must know before beginning a new franchise.
• Having a clear idea and concept is one of the most essential requirements before beginning a new franchise. It is preferred that the concept is unique, motivating, appealing and also have long-term potential. These are most important things required in a business to be successful for attracting the potential franchisees.
• Systematic standards are also essential for carrying out the operations. The standards required include procedures and policies along with other standards necessary in every business. The system consists of special knowledge of how to start a restaurant franchise and the unique ways for running that particular franchise business. Systems are generally characterized by operation manuals.
• The system needs to have the characteristic of being transferable. There is no requirement in the franchise systems for the new franchisees to have prior experience in the industry. As a franchiser, the person must have the ability to teach the franchisees how to start a restaurant franchisee successfully and run the business using their system. The detailed information is transferred through the initial training program, operation manuals as well as through the consistent support provided by the franchiser.
• Having a unique identity is essential. The concept must have notable features that can give the franchise a one-of-a-kind identity in the competitive marketplace. Identity may include multiple things, such as logo and trade dress, description of the location, trademarks of the business and products offered as well as the service marks.
• Not only getting an identity is essential, the franchiser also has to take certain steps for the protection of the identity. This is done by getting a registration made with the US Trade Mark and Patent Office. With the registration made, the franchisers are given all the important legal rights. One of the important parts involved in the process is the investigation of the already existing similar logos and names. The franchiser can also hire a trademark lawyer for ensuring that the marks are given maximum protection.
• Protection of the system also needs to be considered by the franchiser to the maximum extent possible. The protection of system might include several steps, such as keeping the proprietary information as a secret, making use of the discretion agreements as well as non competition agreements with all those people who have an access to the franchiser’s confidential information, assert copyright protection for recordings, training videos, key documents and numerous other things.
Skills and experience are considered to be one of the most essential requirements for knowing how to start a restaurant franchise and various elements required. The franchisor must have the experience and skills to set and run the business that will be further run by the franchisees. Having experience in running their business is an essential for the franchisor beginning the new franchise.
There are numerous reasons for which the operation experience is required for the franchiser. Experienced franchisers can be helpful in demonstrating the practicability of the concept proposed by them, and help in the improvement of system and concept. These are some of the factors useful for the franchiser and can be used by them at the time of selling the franchise.
When looking into how to start a restaurant franchise, the franchiser must keep in mind that the primary goal is to make money for the franchise owners. Each franchisee looks forward to making the maximum possible return on their investment. It is necessary that the franchiser makes sure the concept has the capabilities of generating maximum profits that will allow the franchisee to be profitable after royalties and other fees have been taken out.
The operational manual is the document that will be followed by the franchisees for following the system standards. It is essential that the operating manual must be all-inclusive and updated as new processes are introduced.
The franchisees starting the business from scratch require additional support during the initial stages of opening along with the support from the franchiser. The franchiser must have the administration and executives handy who are capable of providing adequate support to the franchisee. The management must have the capabilities to help the franchisee in selection of site, negotiating in lease, recruitment as well as training of the staff, as well as fulfilling the marketing needs.
It is also important for the franchiser to have adequate time for inspection of the franchised units at regular intervals. This inspection is required for making sure that the system standards are followed by the franchisees in an appropriate manner.
The amount required for starting a franchise system depends on the concept, the amount of work that has already been done for the start up and also the work that has to be done by the franchisor. The other essentials include the business plan, marketing plan, legal compliance as well as the audited financial statements.
What are the components of a Franchise Operating Manual?
The operating manual must consist of all mandatory and binding requirements that are essential for the operation of the franchise according to the quality standards of the franchiser. The operating manual must contain all the detailed information regarding the general requirements of the franchise clearly stated in the franchise contract. There are some specific sections included in the operating manuals.
• There is an introduction section that makes the franchisee familiar with the system and the wide-ranging terms used for the relationship of franchisee and franchiser. Also there is a background section having the details about the system, including the management, history and aim of the system. The site selection section provides an explanation of the requirements for the business location and also gives detail about the factors essential for choosing the appropriate site.
• Archetype plans give the franchisee the layout for the franchise unit, along with the specific information regarding the requirements for the décor of franchise location. With the adequate information about décor requirements, the operating manual also provides a list of necessary purchases to be made with the specified list of suppliers and other relevant specifications that might be required at the time of purchasing.
• Since the franchisee is new to the system, there are instructions made available for them to make it easier to use certain equipment, and also instructions on maintenance and repair. Operating standards are also a part of the operating manual that includes the particular operational suggestions and requirements.
The operating standards are made available in different categories that can include accounting, training, customer service, advertisements, use of the trade mark, purchasing and pricing policy, standards for appearance, servicing standards, insurance and many others. Lastly, the operating manual contains certain important information related to the contacts required by the franchiser’s staffs, supplier’s information and the numerous other important numbers which are required.
Which things must an Operating Manual NOT contain?
The franchiser has to be cautious regarding the things that are considered to be compulsory in the operating manual. It is essential that there must not be system standards for things that can end in someone being harmed. For this, a qualified and proficient attorney can help the franchiser in removing the things from the manual that can cause problems for the franchiser.
What about needed Support?
The franchisers have to provide support to the franchisees who are taking charge of a particular location for the first time. The support provided by the franchisers depends largely on the type of franchise that is involved.
The franchisee might need the support in site selection, unit arrangement, training of the salesperson, providing operational training to the staffs, management training, computer training, accounting training, negotiating in a favorable price that may be for the required services or products, providing the staff with customer service training, identifying suppliers, developing promotional and marketing materials, recruitment of the staff and providing them with training and also providing the franchisee with general advice at all times.
How much money is needed?
After having the knowledge about how to start a restaurant franchise and the various elements that are essential for success, there is a minimum requirement in funding the venture.
Franchisers must submit the FDD (Federal Disclosure Document) developed by the state franchise regulators. It is essential that the franchiser can show that they have the financial ability for performing the duties and responsibilities mentioned in the franchise agreement. The regulators can refuse to register the franchise if the franchiser’s financial position is found weak. Though there is no specific sum of money that will be required for starting a franchise business, a typical amount considered sufficient is $25,000.
Same as any other businesses, the franchise business also requires a certain amount of established costs. These costs can be controlled by the franchiser to a certain extent by making a decision on what types of services will be required for the initial stage of business, choosing the work that can be done in-house and also by making careful decisions regarding the franchise accountant. Since there are some franchisers that do not have a clear idea of how to start a franchise, support from franchise development companies is recommended.
What are my options for franchising on a limited budget?
With an increase in the number of opportunities explored by franchisers today, there are certainly possibilities that are available for the prospective franchisee where they can agree to open a unit with a limited budget. Though there are opportunities available for the franchisers to start franchise at low costs, there are risks involved in doing so.
Getting the audited financial statement from one of independent proficient public accountants is a great step in completing your due diligence. For beginning a franchise with limited budget, the franchiser can work with the franchisees that are agreeable for taking the risks in exchange for possible rewards or incentives in future.
Which legal documents are required?
There are certain legal documents necessary which detail requirements on how to start a restaurant franchise. The FDD is one of these essential legal documents, which summarizes the franchiser-franchisee relationships.
Other than this, there are other legal documents which are required, such as the owner’s agreement detailing the confidential agreement and other restrictions relevant to the concept. The area development agreement is considered essential for the franchisees that want to buy the rights to open multiple franchises in an area. Lastly, the sub franchise agreement is also considered important as a part of the legal documents meant for the liaison in which the franchisees are granted to the third parties by the sub franchisee.
4. Important considerations in planning a franchise concept
Some of the issues which must be considered in the planning process of a franchise concept include:
• Minimum qualifications required by the franchiser of the franchisee
• Discovery processes to find and qualify new franchisees
• Initial franchise fee charged
• Financing options
• Royalties paid by franchisees
• Miscellaneous fees billed back to franchisees
• Length of term for franchisee
• Franchise renewability
• Will the franchisees be required to purchase specific services or goods?
• Will they have to make purchases from selected approved suppliers?
• Ongoing values provided to the franchisees beyond training
5. Essential steps for franchisers to consider
Like other businesses, there are certain steps to be taken after the franchiser has made the decision to franchise their concept. Making sure that the franchiser’s core business is running successfully and established is one of the most important first steps to take. After the decision has been made, the franchiser must begin the process of federal registration of the trademark since this can take the most time. During that period, preparation of operation manual must happen as well.
Keeping a sufficient sum of money that can cover start-up costs is also one of the most important steps to be taken by the franchiser. Researching competitors is a great way to test the feasibility of the concept and see the success rate for concepts similar to the one being franchised. The necessary infrastructure required for supporting the franchisee is a must. Lastly, one must select an experienced franchise attorney that can take care of all the proceedings.