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How to Start a Franchise –7 Necessary Steps to Success

7 necessary steps

Owning a business is part of the American dream, but starting a business can be daunting, especially if someone doesn’t have experience. Some entrepreneurs prefer to start a franchise rather than an independent business because it seems easier. Franchising is a business ownership strategy where a franchisor gives a franchisee the rights to use its procedures, business model, and brand while selling its product or service in exchange for the entrepreneurial spirit the franchisee brings to the business. The benefits of a franchise include operational/marketing support, brand equity, and a proven track record.

A large number of small businesses operate as franchises. In fact, one out of every 12 businesses in the United States is a franchise. Franchising covers all types of industries —including hair care or financial services to burgers and barbecue—which means there are plenty of options that can fit a wide variety of interests, strengths, and budgets.

The biggest benefits franchising offers area proven system of operation and training in how to operate the business. People starting a franchise can avoid a lot of the mistakes start-up entrepreneurs typically make by relying on the franchisor and other franchisees, who, together have already perfected daily operations through trial and error. Before starting a franchise, here are seven important steps to ensure success.

The Franchise Fit

The first step in starting a franchise is to research available concepts and opportunities. There are close to 3,000 franchise companies in the United States, collectively contributing $1 trillion annually to the economy, according to the International Franchise Association. When choosing the right franchise, there are important factors to consider:

Industry Trends: Look at what types of industries are in demand, experiencing growth, aren’t impacted by the Amazon effect, and are recession and pandemic resistant.

Cost: What is the total cost of the franchise (including the franchise fee, property lease, training expenses, equipment, insurance, and more)?

Internal policies/rules/guidelines: What are the franchise’s internal policies and regulations? Do they work with your personal management style?

Once the type of franchise is narrowed down, it is important to delve into every detail about the terms and conditions of the franchise. Initial research usually begins online by visiting the franchise’s website to find out more information about them. There will likely be additional information found on other online sources, such as reviews and testimonials from previous and existing franchisees.

Speak to someone at the corporate office of each franchise being considered. In addition, contact several franchisees from each concept.

Another form of research is in the Franchise Disclosure Document, also known as the FDD. The franchisor will release this document once interest in the concept is expressed. The FDD outlines the franchising rules, fees, responsibilities, and other important information including financial and legal history. It is important to read these rules and regulations to fully understand the franchisee’s obligations to the franchisor.

Discovery Day

Once the franchise is narrowed down, the next step is attending a discovery day, a day-long event to allow potential franchisees to meet and interact with department heads and key executives. A typical agenda for a discovery day involves group presentations, one-on-one meetings, and visits to existing franchises. Some companies are also turning to virtual discovery day formats to allow those who can’t attend or might be uncomfortable with traveling to learn about the ins and outs of their franchise offering.

This is the opportunity to learn about the franchise’s corporate culture, values, policies, and people. The franchisor also uses this day to learn about the potential franchisees and size them up as business partners and whether they want to award a franchise. What exactly a franchisor looks for varies from business to business. Besides specific qualifications (like a college degree, business experience, trade certifications, and enough capital to invest), a franchisor will want to know that the applicant is committed, enthusiastic about their products and services, and willing to follow their policies.

Most franchisors don’t use a “hard sell” at a franchise discovery day. They want potential franchisees to digest information gleaned from the meeting and the interactions with different individuals to give the applicant a good feel for the company’s culture and values.

Franchise Agreement

After attending the discovery day, the franchisor will present the franchise agreement. This is the formal contract between the franchisor and the franchisee that gives the right to open a franchise. It is wise to consult a lawyer with franchise experience to review the franchise agreement before signing any contract.

The franchise agreement is the most critical document in the franchise investment. Talk to the franchisor and thoroughly discuss the contract and expectations with them. If there are any discrepancies between the verbal promises and written contract, bring them up with the franchisor. If the franchisor promises something, it must be contained in the franchise agreement. If not, the agreement can be amended to include the promise. Some of the key agreements covered in the document include:

Franchise Territory and Boundaries

Training and Support Provided by the Franchisor

Length of the Franchise Agreement

Franchise Costs and Fees

Trademarks, Patents and Signs

Rules for Operating

Franchise Renewal Rights and Termination Policies

Funding the Franchise

Before the franchise contract is signed, the franchisee needs funds to cover the franchise cost and other expenses involved. Franchisors typically expect the contract to be signed with the payment needed to start the franchise.

Small Business Loan

A small-business loan (SBA) is one of the best ways to cover startup franchise costs. Because these loans are guaranteed by the government, they have low-interest rates. Unfortunately, new businesses may find it difficult to get approved for funding. However, if the SBA has previously approved loans to the franchise under consideration, the review process may be streamlined.

Traditional Bank Loan: A traditional bank is another funding option, though it is sometimes a longshot since many banks turn down startups. To increase the odds of approval, make sure to come in with a strong business plan that is focused on franchises, and be prepared to present the plan clearly.

Rollover for Business Startups: One common way for franchisees to fund a franchise is called rollover for business startups or ROBS.ROBS allows franchisees to use funds from their retirement supply to invest in their franchise without paying penalties or taxes for withdrawing the money early. This is a solid option for franchisees because they don’t have to pay anything back.

Franchisor Funding: Often, a franchisor will loan money to a franchisee to get their business off the ground. Sometimes, they partner with a financial institution or lender to provide loans. The benefit of getting a loan from their partner lender is that the lender is already familiar with the brand’s business model, and there is potential to get fast financing.

Site Selection

The next step is to choose a location. Each franchise has its own rules and regulations when it comes to choosing real estate. The information will be spelled out in the franchise disclosure document. The franchisor will usually provide some guidelines and recommendations to help find an ideal location based on their market research. Some of those requirements include the minimum square footage and a certain number of parking slots as well as territory requirements.

Some franchisors will share information on how the business has performed in different areas, which can prove beneficial when vetting possible locations.

Many franchisors will accompany franchisees on-site tours to help scout out potential locations, keeping track of commercial development deals, and working with real estate brokers. Some of the considerations for selecting a location for a franchise include

Competitors

Foot Traffic

Demographics/Psychographics

Safety and Convenience

Many franchisees will often start by leasing a property rather than buying because it requires less money upfront and there is a lower risk associated with it. However, if a franchisee can afford it, it may be worth buying a space and building equity.

Hiring and Training

Hiring good employees is one of the most challenging arts of starting a business. There are many different ways to find quality employees, both online and offline. Also, there are various online hiring platforms for those who need to hire both low-skilled and professional workers.

Before opening the doors, franchisees and their employees also need to participate in the necessary franchise training programs provided by the franchisor. A good training program can teach franchisees everything needed to know about products or services. Training usually lasts one to two weeks, with follow up sessions scheduled after the franchise begins operating.

Get Ready to Open

Before opening, it is imperative to alert potential customers to their new marketplace option. Franchisors will often have defined marketing processes available for franchisees —including signage, ads, and other initiatives to be performed. Cost estimates and suggestions for these initiatives will usually be a part of the start-up costs quoted in the FDD.

A“soft opening” is recommended before the “grand opening.”A soft opening is designed to smooth out any kinks in the operation of the business before the big marketing blitz, and hopefully larger crowds that will come with the grand opening. Some franchisors also arrange for a corporate trainer to be on hand at the franchise location during the opening days.

Realizing the Dream

Starting a franchise is no easy feat, though many of the risks of starting a small business are eliminated by choosing the franchise route. Following the seven steps above will help potential franchisees stay on track in their path to entrepreneurship at the realization of the American Dream.

American Family Care has been helping people realize their dreams of business ownership since 1982, when D. Bruce Irwin, M.D. opened the first American Family Care (AFC) in Birmingham, Alabama. Since then, our model of “putting the patient first” and providing an alternative, non-emergency room option for urgent care has made us an industry leader and a patient favorite at our clinics throughout the country. All AFC centers provide access to primary care, urgent care, minor emergency treatment, and occupational medicine.

AFC has pioneered the concept of non-emergency room urgent care, offering patients a simple and efficient alternative to lengthy and frustrating trips to the ER. Our average patient visit lasts about an hour, from registration to discharge, and offers on-site access to digital x-rays, lab testing, state-of-the-art diagnostics, electronic medical records, and well-trained teams of medical professionals. Residents of the communities we serve love knowing that they can rely on our services when they need urgent, non-emergency care.

AFC currently operates more than 238 facilities across 22 states. It is not necessary to have a background in healthcare to own an AFC franchise. In fact, more than 60 percent of AFC franchisees do not have medical experience.

If you’re looking for a way to break into the booming healthcare franchise industry, there’s no better way than to invest in an AFC clinic of your own. Contact us today to learn more about what it takes to get started!

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