how to franchise an existing business

6 Steps to Franchising Your Business

• 1. Know your business inside and out. The directions provided to each franchisee will likely have to be precise. ...
• 2. Learn about the legal issues. ...
• 3. Know how you want to grow. ...
• 4. Screen your franchisees. ...
• 5. Set the right restrictions. ...
• 6. Support your franchisees.

Full Answer

Should I buy a franchise or start my own business?

Buying a franchise is very different from starting a mom-and-pop business. Since there is an already established system in place, there is a higher likelihood of success. If you invest in a proven franchise opportunity and follow the system the franchisor has put in place, you should be on your way to running a successful business.

What to consider before buying a franchise?

What to Consider Before Buying a Franchise

• Make Sure Your Family is On Board. Owning a franchise—or a business of any kind—is truly a family affair. ...
• Count Your Cash. ...
• Reach Out to Other Franchisees. ...
• Do Some Soul Searching. ...
• Test the Product. ...
• Understand What You’re Getting Into. ...
• Talk to a Franchise Consultant. ...
• Come Up With an Exit Strategy. ...
• Consult With Franchise Experts. ...
• Do Your Due Diligence. ...

How to finance the purchase of an existing business?

Financing Options when Acquiring a Business

• Seller Financing. Some owners who are selling their businesses are willing to loan buyers the money to purchase their business.
• Leveraged Buyout. ...
• Raise additional equity
• Mezzanine financing (subordinate financing) This is a hybrid form that combines debt and equity financing. ...

Should you start a franchise business?

There are many benefits to running a franchise, as there are benefits to starting a new business. The truth is, which one is right for you will depend on what your goals are and the type of entrepreneur you are. If you start a business from scratch, you’ll have your work cut out for you.

How to decide whether to franchise or buy a business?

What is a franchise business?

What is business format franchising?

What is the difference between franchising and buying a business?

What is the most common form of franchising?

What does a franchisor do?

What are the zoning requirements for a business?

See 4 more

About this website

How much does it cost to turn a business into a franchise?

Franchise startup costs can be as low as $10,000 or as high as $5 million, with the majority falling somewhere between $100,000 and $300,000. The price all depends on the industry, location and type of franchise.

How do you buy an already established franchise?

Here are some tips to guide you when it comes to a franchise resale.Understand the FDD. ... Review Transfer Requirements. ... Determine the Business Value. ... Discuss Why the Current Franchisee Is Selling. ... Examine Financial Records. ... Learn More About the Seller & Franchisor. ... Analyze the Franchisor. ... Pay the Transfer Fee.More items...

What is the process of franchising?

Design Your Franchise Model Your franchise agreement term and renewal conditions. The geographic areas you will go into and the specific territory rights for each franchisee. The amount of start-up and ongoing training you will provide. Whether franchisees must buy products or equipment from your company.

What franchise is the most profitable to own?

Most Profitable FranchisesDunkin'7-Eleven.Planet Fitness.JAN-PRO.Taco Bell.Orangetheory Fitness.Great Clips.Mac Tools.More items...•

What is the disadvantage of buying an existing franchise?

The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market. You may find that after some time, ongoing franchisor monitoring becomes intrusive. The franchisor might go out of business.

Do franchise owners have to work?

Owning a franchise unit can be demanding, requiring work of 60 to 70 hours a week, but owners have the satisfaction of knowing that their business's success is a result of their own hard work. Some people look for franchise opportunities that are less demanding and may only require a part-time commitment.

How do I open my first franchise?

Steps to Start a FranchiseStep 1: Research your options. ... Step 2: Select a franchise that aligns with your business goals. ... Step 3: Create an LLC or a corporation. ... Step 4: Arrange financing. ... Step 5: Talk to the franchisors and franchisees. ... Step 6: Talk to members of your community. ... Step 7: Create a business plan.More items...•

What are the requirements to franchise?

Some franchise requirements to take into consideration may include:Credit score. Minimum credit scores vary by franchisor, but most consider a grade of 680 or higher as ideal.Net worth. ... Available cash. ... Previous industry experience. ... Management experience. ... Total investment required. ... Ongoing costs. ... Training and support.

What documents are needed to open a franchise?

There are two ​legally required documents you should become very familiar with before ​franchising your business: the Franchise Disclosure Document, and the Franchise Agreement.

Can you get rich owning a franchise?

The bottom line is that while a franchise can make you independently wealthy, it isn't a guarantee. Choosing the right business in the right industry, and going in with preexisting entrepreneurial experience and/or existing wealth can help, but your income-generating potential may still be somewhat limited.

What are the 4 types of franchising?

The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.

Do franchise owners make money?

Franchise Business Review found that the average annual pre-tax income of franchise owners in America is $80,000. Only 7% of franchise owners make more than $250,000 annually, and 51% earn less than $50,000. Legally, franchisors cannot give income amounts or forecasts of future income.

Can you inherit a franchise?

Generally, the franchise agreement contains a right to buy the franchise back by the franchisor; therefore, the franchisee's family or heirs do not inherit the franchise.

How do you transfer a franchise?

How to Transfer a FranchiseNotice of your intent to transfer. Before you enter into any contract to transfer your franchise, you will usually have to give the franchisor written notice of your intention. ... A written agreement. ... Written approval from the franchisor. ... A guarantee of sorts. ... Payment of a transfer fee.

Which is more advantageous to you buying a new franchise or buying an existing franchise?

In general, proven franchises are a safer investment, but if the idea of breaking ground in a new franchise area doesn't faze you (or even appeals to you), then a new franchise might be a better option. To be honest, there's no right or wrong answer to the new versus existing franchise dilemma.

How much do franchise owners make?

When researchers accounted for the inflations caused by the few top franchises, it was established that the average annual income of 51 percent of franchisees is less than 50,000 dollars. The study also found that only 7 percent of franchise owners earn over 250,000 dollars a year.

Do franchise owners make money?

Although franchisors cannot forecast income, as a franchisee, you can definitely make money. It’s important to assess your costs regularly and make...

Are franchise fees paid yearly?

Franchise fees are usually on a monthly basis. The fee is a percentage of your revenue, and the royalties can range from 4% to 12% per year.

How much does the average franchise owner earn per year?

In a study from Franchise Direct, the average franchise owner makes $80,000 a year before tax. However, the range of income is quite large: anywher...

What kinds of franchises are available?

In general, there are three types of franchises available: business, management and product distribution. A business franchise gives you the rights...

SBA Franchise Directory

This list is made available for use by Lenders/CDCs in evaluating the eligibility of a small business that operates under an agreement.

Businesses For Sale by Owner - Business for Sale Listings by Owner ...

Businesses for Sale by Owner. Search thousands of businesses for sale by owner and also businesses for sale by business brokers. BusinessMart.com allows business owners to sell businesses for as low as $69.95. We have many business for sale by owner listings.

Businesses For Sale by Owner Retiring - Classifieds

Buy Established Small Business: If you are considering starting a small business, buying an already established business for sale can be a great way to start a business.While it is harder for new and start-up businesses to generate cash flow and/or to obtain business loans, if you are buying an established small business on sale or an existing franchise on sale with revenue and cash flow, you ...

What is a Franchise?

The Federal Trade Commission defines a franchise as a business relationship with three primary components:

What is franchising in business?

Franchising generally consists of developing additional outlets through the sale of franchise rights to independent investors. These investors will then use your name and system of operation. An initial franchise fee is paid to the franchisor by the franchisee in return for the rights to operate a business under the franchise trademark.

What is a trademark in franchising?

A trademark is a representation of the “brand” – the entire character and persona of the concept. While many companies will start franchising before their trademark is completely registered, you will definitely want to have begun the process.

What is a successful prototype for a franchise?

Your franchise needs a successful prototype – the real-life example of the possibilities of your business. An active, exciting operation allows prospects to picture themselves running your franchise. But beyond a demonstration of the viability of your concept, an original location can also become a training center for new franchisees and a testing location for new products, services, or techniques.

Do you need to submit FDD before selling franchises?

The FDD needs to be submitted and approved by various states that regulate franchising prior to even speaking to anyone about your franchise program. Be sure you are trained in all aspects of franchise sales – including the legalities governing these sales – before you start selling franchises.

Do franchisees pay royalty?

With many systems, a franchisee will pay a continual periodic royalty fee for ongoing support and training in: From your perspective as a franchisor, all of the capital required to start the business is furnished by the franchisee. This is one of the most important benefits of franchising.

Is it better to start a franchise or a franchisee?

If you answered yes to these questions, then starting a franchise may be the best model for your business. Starting a franchise with your business has many advantages: – Money: You expand using the franchisees capital. – Reduced Risk: Franchisees are responsible for hiring, leases, and unit-opening expenses. The franchisee assumes the risk of ...

How to decide on a franchise?

Investigate the franchise business thoroughly, the industry and territory you’re considering, and compare it with other franchises. You can request detailed information directly from any franchise you are considering. Below is a list of considerations for deciding on a franchise:

What is the best professional opinion to obtain before investing in a franchise?

The advice of a lawyer is the most important professional opinion to obtain before investing in a franchise. A lawyer can advise about legal rights in entering a franchise agreement, any legally binding obligations, and may be able to suggest important changes in the contract to better protect your interests. They can also advise you of any state and local laws that may affect the franchise business, if the agreement is compliant with FTC regulations, and will assist with the taxation and personal liability questions that must be considered in establishing any new business.

What is a franchise disclosure?

The franchiser is required by law to give you a disclosure statement (sometimes called an “offering circular” or “prospectus”) describing their franchise system and your obligations as well as certain required information such as the franchise’s litigation and bankruptcy history, and a list of current and former franchisees. This information will help you compare franchises, understand the risks, and set your expectations.

What to consider when buying a business?

However, it’s critical to do your due diligence and make sure that the business you’re buying is foundationally sound – for instance, you may not want to buy a business that has many debts that you may owe or need to collect. Also make a clear assessment of what you are buying: does the business come with the building, or is it still being leased? What equipment and assets will be included? For instance, if it’s a restaurant, will you be able to keep the menu and use the recipes? Will you take over the website and have access to the customer mailing lists?

What happens if you don't get a clearance before buying a business?

If you do not obtain a clearance before you buy the business, and if taxes are owed and the previous owner has failed to pay those taxes, you could be required to pay any taxes, interest, and penalties that are due. Make sure you have a clear goal and understanding of what it means to buy a business.

What are the key items to consider when evaluating a business?

Some key items include: Inventory and Assets. Conduct an in-depth assessment of the invent ory and other assets – such as furniture, fixtures, equipment and the building – so you can know its condition and value. This approach can also serve as a starting point to determine the value of the business. Zoning and Permits.

How long do you need to request financial statements?

Request all financial documents, including financial statements, accounts payable/receivable and tax returns, for the past three to five years. This will help you determine the profitability of the business, if there are any outstanding tax liabilities, and the actual financial net worth of the business. You may need to enter into a confidentiality agreement with the business owner to obtain this information.

The Ins and Outs of Franchising

In simplest terms, franchising is a partnership established to distribute goods or services. It takes at least two parties to enter a franchise relationship - the franchisor and the franchisee.

Types of Franchises

Yes. A franchise opportunity allows small business owners to tap into a powerful arsenal of experience and knowledge. However, there are usually strict guidelines that franchisees must follow to remain in the partnership.

How to Evaluate Franchise Opportunities

If you're considering investing in a franchise, try not to look at it from the perspective of a consumer. Just because a particular franchise is popular doesn't mean that it's the right opportunity. You need to take a look at the entire franchising landscape.

Crossing T's and Dotting I's on a Franchise Deal

Once you've settled on an opportunity, you must vet the franchise thoroughly. At this stage, you want to recruit experts. Hire an accountant and an attorney to help you with the process.

The Biggest Challenge for Today's Franchise Owners

Consumer spending is up in 2019, which is excellent for franchise owners. At the same time, the labor market is tight, and employees are a vital part of operating a franchise.

What are the criteria to buy a business?

Some of the criteria you should keep in mind are the business ’ physical location, its industry, the size of the business, and the lifestyle you have versus the lifestyle the company currently operates under. These are great baseline figures to think about because, even though you’re buying this business, you’re integrating into something that already exists. So, if you go to a company that you’re not compatible with and try to force it into something that it’s not, it can be difficult to move forward.

What is the best way to find businesses for sale?

Searching on BusinessBroker.net is a great way to find businesses for sale.

Why is it important to ask questions when buying a business?

When you’re going into the process of buying a business, it’s vital that you ask the right questions, to dig deeper into why an owner is trying to sell a business. Doing so will help you find out if you’re making a sound investment.

Why do people dream of owning a business?

Many people dream of owning and operating a business, citing that it’s essential to achieving the American Dream. It’s not uncommon to hear stories of people saving every last cent they earn to start their own company and watch it flourish. But, as business and economic landscapes change, more and more prospective business owners are opting to buy existing businesses instead of starting from scratch.

What are some examples of business problems?

Examples of these include management problems, other disputes among staff and ownership, or even issues with equipment or resources that make running the business difficult. Burnout. Owning a business can be demanding, which often leads to burnout. Burnout can lead to declining revenues and discouragement of employees.

How many hours does an entrepreneur work?

Being an entrepreneur is often a job that easily exceeds the standard 40 hour work week. It’s natural to want to retire after getting a business off the ground and running it for many years, whether that means passing it to a trusted associate or selling the business altogether. Exploring a New Venture.

What happens when a business is liquidated?

Financial Turmoil. Even if a business is profitable, the business owner can still have made bad financial decisions that land them in hot water. When this happens, they see liquidating the business as a way to relieve them of debt or other financial burdens.

How long should a franchise owner spend on operating costs?

Understanding how franchises are valued. To get the most money from the sale of an existing franchise unit, the seller should prepare to spend two to three years controlling operating costs and creating clean financial records. Franchise owners that cannot or do not take the time to do so run the risk of losing money in the long run.

What is the EBITDA multiple for a business?

"Most businesses are sold on a multiple of proven cash flow, through EBITDA or seller's discretionary earnings (owner benefit items that have been expensed through the business). If you're going to sell, you want to eliminate as much seller discretionary earnings as you can because it creates a clean EBITDA multiple for the valuation," said Randy Jones, Head of Originations at ApplePie Capital.

How long should lease rates be held steady?

A lender will want to see that lease rates are held steady for at least the length of the loan terms.

Can a first time buyer finance a unit?

If the seller can prove that his or her unit has predictable positive revenue trends, it will be much easier for a first-time buyer to finance the unit . If trends are negative, the seller may have to finance some of the deal in order for the transaction to move smoothly.

Do real estate leases affect franchise units?

Similarly, real estate leases will have a significant impact on the value of a franchise unit.

Can you refinance a franchise?

Finally, buyers who already own successful franchises have the option of refinancing their existing units to pay the down payment on new loans. For example, if you currently have a loan of $200,000 and you need $50,000 in cash, you could refinance at $250,000. This option is only available from a few lenders, including ApplePie Capital.

How to decide whether to franchise or buy a business?

Quantify your investment: Review your financial landscape and decide how much you’re willing to spend to purchase — and ultimately manage — the business.

What is a franchise business?

A franchise is a business model where one business owner (the “franchisor”) sells the rights to their business logo, name, and model to an independent entrepreneur (the “franchisee”). Restaurants, hotels, and service-oriented businesses are commonly franchised. Two common forms of franchising are:

What is business format franchising?

Business format franchising : The franchisor and franchisee have an ongoing relationship. This style of franchising normally focuses on full-spectrum business management.

What is the difference between franchising and buying a business?

The main difference between franchising and buying an existing business is the level of control you’ll have over your business.

What is the most common form of franchising?

Two common forms of franchising are: Product/trade name franchising : The franchisor owns the right to the name or trademark of a business, and sells the right to use that name and trademark to a franchisee. This style of franchising normally focuses on supply chain management.

What does a franchisor do?

Typically, the franchisor offers services like site selection, training, product supply, marketing plans, and even help getting funding. When you buy a franchise, you get the right to use the name, logo, and products of a larger brand. You’ll also get to benefit from brand recognition, promotions, and marketing.

What are the zoning requirements for a business?

Zoning requirements : Zoning requirements may affect your business. Make sure your business follows all the basic zoning laws in your area. Environmental concerns : If you're buying real property along with the business, it's important to check the environmental regulations in the area.