How to Buy a Franchise Business

A franchise is a great option for people who want to get into business but don’t want to start from scratch. Franchise businesses are designed to offer a proven business model in exchange for some significant upfront costs. Despite being a bit high, the initial investment is often worth it for those who are ready to take on business ownership but don’t want to strike out completely on their own. 

Before you can go out and buy a franchise, though, you’ve got some planning to do. In this guide, we’ll teach you everything you need to know about buying a franchise, starting with doing all the necessary research. First, let’s talk about the advantages that come with franchise ownership. 

The benefits of buying a franchise

You might think that there should be a “pros and cons” section for franchise businesses. However, aside from the big influx of cash required upfront, there really isn’t a lot to say about franchises on the negative side. They might be too rigid for some, but the structured business model is actually what brings most people to this type of operation. 

One of the biggest perks is that franchises come with a framework. They have guidelines, established operating procedures and marketing plans, and a brand that people know (and probably already love). You usually get corporate training and hands-on feedback from the franchisor. Some will even take care of the marketing prior to the business opening and increase the royalty fees a bit to cover the expense. And when you’re starting your first franchise, that fee can be well-worth having someone else set you up for success. 

So, now that you know why franchises are a good choice let’s talk about how to buy your own. To make it simple, we’ve broken it down into five easy steps:

1. Research and find your franchise opportunity
2. Make contact to obtain applications and disclosures 
3. Review the franchise agreement in depth 
4. Get financing in order 
5. Choose a location 

Research and find your franchise opportunity

The first step is to do your homework and figure out what franchise you want to open. There are several different types of franchises to choose from today. Some of our most beloved brands operate on franchise models:

• KFC
• 7-Eleven
• McDonald’s
• Marriott International
• Pizza Hut
• Century 21
• Ace Hardware
• The UPS Store

We could go on all day—or you could look up the top franchises in the United States and go from there to find the one that fits your interests and your budget. Make sure that you check all the requirements for each franchise, of course, because they usually have minimum requirements for things like liquid assets, working capital, net worth, and so forth. 

Get applications and disclosures

Once you’ve decided which franchise(s) you want to consider, you’ll want to get applications and the franchise disclosure documents (FDDs) so that you understand exactly what you’re agreeing to and what you are paying for when you buy the franchise. If you’re not sure how to proceed, you may want to talk to a business lawyer who is familiar with franchise businesses so that you can complete the process properly. 

Review the franchise agreement

This is another good time to enlist the help of a lawyer. Someone who can assist you in reviewing all the terms of the franchise agreement will allow you to make sure that you know exactly what the franchisor is offering in exchange for your franchise fee, royalties, and your contract to operate the franchise in line with the corporate guidelines. 

Read all the details and make sure that you understand everything. Ask questions if you have them. If something seems off or you just don’t agree, don’t sign and go back to the drawing board to consider another franchise option. 

Get financing in order

Once you’ve chosen and applied for your franchise, you’ll need to start organizing your financing. You should already have the money on hand to buy the franchise and still have the required assets and net worth. Work with an accountant or financial planner on this process if you’re not sure about doing it yourself. And if you need to, feel free to ask the franchisor for assistance. They’ll be more than willing to help you make sure that you’ve got everything in order. 

Remember, it can take six months or more for you to turn a profit, even with a franchise, so you’ll want to be sure that you have the necessary operating capital on hand, too. This amount will vary depending on the business that you choose and the related overhead and costs that you’ll need to cover. 

Choose a location

Now that you’re ready to start putting the business idea into the real world, you’ll need a location from which to do it. Franchisors may have specific location requirements, such as you must be a certain distance from other locations, or there must be a minimum amount of square footage, parking, etc. 

Make sure that you review your franchise guidelines so that you know how to find the right location. You can also enlist the help of a commercial real estate agent to ensure that you get a property that is ideal for the franchisor and for your business alike. Most franchise owners choose to lease a property to begin with, but you may choose to purchase a franchise location if you can secure the funds for a commercial real estate loan. 

If you build it, they will come… are you ready?

While you’re busy setting up shop, have you begun to think about who’s going to be fielding all those new leads? When you partner with Smith.ai, you’ll get a dedicated team of virtual receptionists who can offer 24/7 answering support, live website chat, and even assistance with your outreach campaigns for your new business. Plus, we can help with lead intake and appointment scheduling so that you can focus on running your franchise. To learn more, schedule a consultation or reach out to hello@smith.ai. 

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