Want to buy a franchise outside the United States? You’re in luck, because franchising is increasingly a global affair. Consider this statistic: Every year, we rank the top 500 franchises in our Franchise 500 list — and this year, nearly 45% of those brands’ locations were outside the U.S.!
That’s not to say global expansion is easy. It comes with plenty of challenges — from adapting products, services, and marketing to various locales and cultures, to dealing with different laws and regulations, to overcoming language barriers. But more and more franchisors see value in it, which is why we recognize the strongest global brands in this annual ranking.
To compile this list, we begin with our Franchise 500 ranking formula, which assesses and scores franchise opportunities based on more than 150 data points in the areas of costs and fees, size and growth, franchisee support, brand strength, and financial strength and stability. We adjust this formula to give extra weight to system size and growth outside of the U.S., and the resulting top-scoring companies become our 200 top global franchises.
This list can offer a great place to start your search if you’re interested in buying a franchise outside of the U.S., or if you just want to get in business with a globally minded brand. But it is not intended as a recommendation of any particular company. You should always do your own thorough research before investing in any franchise opportunity, to find out if it’s right for you and your corner of the world. So make sure you read the company’s legal documents, consult with an attorney and an accountant, and talk to current and former franchisees.
Want to buy a franchise outside the United States? You’re in luck, because franchising is increasingly a global affair. Consider this statistic: Every year, we rank the top 500 franchises in our Franchise 500 list — and this year, nearly 45% of those brands’ locations were outside the U.S.!
That’s not to say global expansion is easy. It comes with plenty of challenges — from adapting products, services, and marketing to various locales and cultures, to dealing with different laws and regulations, to overcoming language barriers. But more and more franchisors see value in it, which is why we recognize the strongest global brands in this annual ranking.
Opinions expressed by Entrepreneur contributors are their own.
In a professional landscape that places increasing value on gig work and side hustles, it’s important to make sure that we are evaluating new ventures carefully before diving in. After all, there are only so many hours in a day, and entrepreneurs in particular must ensure their time is allocated efficiently.
From a business model perspective, franchising offers a middle ground between the stability of a corporate job and the uncertainty of a true startup business. Franchises provide a blueprint to new franchisees that detail proof of concept and profitability. It’s no wonder many professionals looking to transition out of a corporate role and into business ownership consider franchising as a viable option.
As a franchise consultant, I’ve observed first-hand the value a corporate background can have when applied to franchise ownership. These aspiring entrepreneurs are hard-working, motivated, decisive and have strong leadership skills (among many other traits). The trick is knowing when to make the jump.
I am often asked whether franchising is something that can be done on the side while continuing to work at a full-time corporate position. The answer? Ultimately, it depends on your circumstances.
The largest issue that places franchising at odds with maintaining a traditional 9 to 5 is the lack of flexibility. There’s no way around it — owning a business requires attention during the business day. Even if you have a manager running it for you, oversight and the ability to be present at a moment’s notice are vital. This means time and focus that is entirely separate from your day job. Only you truly know how time is spent daily in your current position.
Imagine a typical workday. You’re in the middle of a task and you get a notification that a pipe has burst in your franchise storefront. Are you able to get up immediately and attend to this urgent matter? If not, you may need to reconsider whether you truly have the flexibility to maintain both a franchise and your corporate job.
2. How much upfront capital investment you can make
Typically, side hustles may not require upfront capital (or may require minimal start-up costs). However, they do often require a great deal of time and work upfront (hence side “hustle”) before they create a semi-passive income. Consider internet businesses or affiliate websites that are entirely conducted online and do not require real estate, overhead costs or additional employees. This is not realistic for franchise ownership.
Because being awarded a franchise means that you have access to business materials, marketing plans, hiring assistance and many other resources that bypass common headaches and wasted time and money on the traditional startup path, you have a leg up from day one. And while this is a major selling point for many who are motivated to own a business, it does add to the initial investment cost.
There are many different franchise concepts and, subsequently, vastly different investment costs. However, as a rule of thumb, even the minimum capital investment for a franchise is going to be approaching $100,000 (the franchise fee alone is often between $50,000 to $60,000).
*Note: According to the U.S. Small Business Administration website, the franchise fee is described as “the cost of entry. Paying the upfront franchise fee unlocks the door to the franchisors’ proprietary business systems and more. You get the complete setup. The franchise fee is literally a license to own and operate the franchise business.”
3. How much oversight you can provide
Working hand-in-hand with flexibility, it’s important to understand that franchising — or owning any business — is never truly absentee. Even if you hire a manager to run day-to-day operations, you are responsible for oversight. Furthermore, you must be able to step in at a moment’s notice if your general manager leaves or is unable to perform their role.
Since most franchises are local and regional brands that fall under the category of everyday essential services, they require local representatives and will therefore have employees. Due to the nature of managing employees, it’s difficult to maneuver employee management into a side hustle.
At the end of the day, much of this question comes down to the control you have over your daily schedule. If your current job allows for flexibility in the middle of a workday (possibly if you work in real estate, sales or perform remote work and have flexible deadlines), then franchising can often work as a side hustle.
Additionally, if you have a large amount of financial capital to work with, then you will be able to hire employees and managers who can offset the workload. Enough capital can solve almost any time-related problem. However, as noted above, this is not a catch-all solution. You will likely have to invest more time to get the franchise up and rolling. Over time, developing a hierarchy of employees and managers can minimize your time commitment.
We all know that when making any major career change, it’s important to perform due diligence and ensure that you are making the most well-informed decision possible. If you are considering franchise ownership as a side hustle, I encourage you to carefully consider your lifestyle and decide if you can realistically operate a franchise on the side, or whether you fall into the larger category of owners who must commit more time to this endeavor.
Opinions expressed by Entrepreneur contributors are their own.
After a decade-plus of advising people about getting started in the franchise industry, my colleagues and I at FranCoach have seen and heard just about everything. One of the questions that we hear a lot from our clients is, “What is the best franchise?” Or sometimes people ask “What is the hottest industry out there?”
Without a doubt, these are the easiest questions we have to answer.
The Myth of the “Best” Franchise
So what is the best franchise?
The answer is incredibly simple: There is not one. There is not one best franchise. There is not one best or hottest industry. It is truly that simple.
If anybody tells you differently, they are either lying to you or they do not know what the heck they are talking about.
You might be thinking, how is that possible? There has to be a “best” franchise and a “hottest” industry.
Well, there is not — and I will explain why. There are a few different bits of information that go into the reasoning here, but first off, franchising is an incredibly individualized and personalized process.
What is best for you is not what is best for the next person or the person. Here’s the analogy I often use:
My wife’s friends or family might ask her, “Why in the holy hell did you marry that old bald dude?” It’s probably a valid point, but for whatever reason, I was her person, her match. The same concept applies to franchises. Sometimes, the old bald dude is really the best fit for people. And for the next person, the best fit will be totally different.
In other words, beauty is in the eye of the beholder.
When it comes to the franchising industry, there are a few important points to understand.
If you combine every franchise out there, the industry is valued at over $800 billion – yes, billion, with a B. There are over 800,000 franchise units in the country, and they employ over 9 million people. This is a massive industry.
Within that, there are many different industries and niches. For example, at FranCoach, we work with over 600 franchises and about 70 industries.
Every one of those niche industries is going to throw shiny buzzwords and stats at you. This industry is booming, this one is recession-proof, and that one is essential. That one over there is up-and-coming, this other one is trendy… you get the idea.
But ultimately, none of that matters. What matters is YOU. What is the best thing for YOU?
The Get Out of Bed Test
We talk a lot about the Get Out of Bed Test. What does that mean? It means that you are the one who is going to be the franchise owner. You are the one that has to get your butt out of bed and go run this business every day.
With the Get Out of Bed Test comes a series of questions you will want to ask yourself:
What are you good at?
What do you enjoy doing?
Who are the people that you want to be around? Think about your staff, if you have one, and the customers in your community.
What are the core values of the business?
What is it that you want to do every single day?
Your answers to those questions are what matters. At the end of the day, franchisors are not looking for industry experts. They are looking for people who will run their business. So instead of looking at a certain industry or a certain brand, trying to figure out what is the “hottest” or the “best,” you want to think about what is best for YOU.
As you think about your answers to the questions above, a whole world of possibilities begins to open. It can be a little bit overwhelming to consider all of the franchise options out there — remember, this is an $800 billion industry. There are over 4,000 franchise brands in the U.S. alone, not even considering brands located internationally.
In other words, it is a lot to sift through. So what do you do? How do you find the right fit?
Finding the Right Fit
That’s where the FranCoach team comes in. What our team does is not hunt for the best or the hottest franchise — instead, we get to know you. Everything revolves around you: What are you good at? What do you want to do?
Once we understand your answers to those questions, we start to build from scratch what you are looking for, what you are good at, and what you do not want to do. What are the core elements of the right business for YOU?
We know the differences between all of the 4,000 franchises out there — we have seen behind the curtain. We know what each one is all about, so we can hunt down what is going to be the best thing for you. The hottest thing for you is going to ultimately be your match.
Pretty darn simple, right? So what is the trick? The trick is finding the absolute best franchise for YOU.
Think about it like this: You are terrible at sales, you hate people, and you never want to talk to anybody. Then you start a franchise because somebody tells you how good it is or how hot it is. But it turns out that you have to sell and be the face of the business to succeed.
Well, guess what? It is not going to go very well. That is a terrible match. It does not mean that is a bad franchise. It does not mean you should not own a franchise. It means it is a bad match.
There is no “best.” There is no “hottest” for everybody. What matters is YOU and finding the best franchise for your skills, needs, and goals.
Work With the FranCoach Team Today
If you are ready to learn more about franchise ownership, you are in the right place. Here at FranCoach, we work with our clients to help them find the absolute best franchise for them.
Our number one goal is to properly educate you about franchise ownership. We want to help you determine if franchise ownership is the right path for you — and if so, we will guide and support you through the process of finding your perfect match.
And the best part? Our services are 100% free, 100% of the time – seriously. Reach out to us today to learn more about becoming a franchise owner. You have read this far… so why not take the first step today toward your better tomorrow?
Opinions expressed by Entrepreneur contributors are their own.
When considering the exit of a franchise business, it can be easy to assume the reason for exiting is due to one of two possibilities: Either the business was so successful that someone made an offer to purchase it, or it was such a failure that the owner had to “get out.” As with most things, the real answer is often more complicated. There are plenty of other reasons someone might be looking to exit their business.
In the excitement of starting a franchise business, an exit strategy is frequently overlooked, despite its importance in the planning process. This is understandable since we usually don’t like to think about the end of a journey before it’s begun. However, during my years as a franchise consultant and franchisee, I learned the importance of having an exit strategy in place. The best thing you can do? Plan ahead so you aren’t making critical future decisions under duress.
Optimize your exit value by planning before a major change forces your hand. Common reasons people exit a franchise include:
Getting a job offer they can’t refuse
Deciding they are ready for retirement
Experiencing a major life change (divorce, family change or illness)
Receiving an unsolicited offer for a successful business
Choosing to acquire or expand in another business
Breaking up with a business partner
Financial struggles in an existing business
For this last reason, it’s important to remember that just because the business didn’t deliver the outcomes desired by the franchisee, it doesn’t mean there is no value. It’s common for business owners having trouble operating a business to sell it to a new owner who can step in and make it successful. After all, initial efforts by the original owner have likely shortened the launch ramp for a new buyer, including critical and time-intensive startup tasks such as securing a commercial lease, procuring equipment and inventory, recruiting and training employees and building a customer base.
With all that in mind, here are four ways you can exit your franchise.
This option depends on the maturity of your franchise system. For example, say your franchise brand has been around for 40 years. In this scenario, they may have an entire team dedicated to resales, including special programs in place to work with lower-performing locations to encourage them to cycle out. Alternatively, say the system is a younger franchisor — in this case, the brand may not have a resale team in place, but they could still have relationships with brokers or consultants to assist you in a sale. The main point here? Don’t keep your franchisor in the dark — you and the franchisor have aligned interests (what’s good for you will likely be better for them in the long run).
That said, keeping open communication with the franchisor does not mean they will solve the problem for you, but there will be more options available if you are transparent.
2. Hire a business broker
Selling a business will always take time, but if you need to move more quickly (sell in six to 12 months), the highest likelihood of success often lies in hiring a business broker in your area. The benefit of working with a broker is their industry knowledge and access to a large database of buyers in your local market. It’s their business to send out opportunities to their large network of potential buyers frequently.
Business brokers are professionals at conducting transactions — so they can also connect you with other people who will help with the process (attorneys, due diligence, closing, escrow, etc). Keep in mind: Like a good real estate agent, they are likely looking for an exclusive listing. These agreements are often in place for 12-month terms, although terms are often negotiable. You may also be able to negotiate fee exclusions for specific buyers such as selling to another franchisee, etc.
How much are the fees? The fees will be a percentage of the final sale — expect this to be as much as 10% or a minimum flat rate on smaller sale transactions.
3. Go it alone and sell yourself
At the end of the day, there is nothing that says you can’t try to sell your franchise independently. Maybe you have customers that love your business and would dream of owning it one day. Occasionally, even if you weren’t thinking about selling, someone may approach you and put in an offer. In this case, you can hire an attorney and forgo the broker process (win-win).
While this may seem like an appealing option, there are a few things to consider. If you don’t have a readily available buyer, it takes a substantial amount of marketing to promote your business of sale. For example: Think about selling your house without an agent — not as many people will see it and you may have to pay a buyer’s agent regardless. The main challenge in selling independently is being able to find ready, willing and able buyers.
A lesser-known option may be to contact a franchise consultant who works with your franchise brand (choose a franchise consultant who is part of a national network in your market). While they probably don’t have as large of a local database as a business broker, they have a steady stream of buyers looking to start a franchise business. They may have current candidates or former candidates that align with your brand. And though they may not have as large a local database of a business broker, an experienced consultant residing in your market could have possible buyers for you — but expect that any fees required are paid by you, not the franchisor. A franchise consultant may not be a silver bullet, but it’s worth having a discussion.
Ultimately, there is no one-size-fits-all process for setting up an exit strategy, but it’s important to do the research early so you’re not making any hasty decisions from a position of duress.
Opinions expressed by Entrepreneur contributors are their own.
If you’re interested in franchise or business ownership and you’re in the beginning stages of researching what kind of business matches your entrepreneurial goals, the options available can be overwhelming. After all, 20% of new businesses fail in the first two years of being open, 45% during the first five years and 65% during the first 10 years, according to the U.S. Bureau of Labor Statistics. Additionally, franchises exist in nearly every service industry, and there are more than 3,000 registered franchise brands across the United States.
Because franchise and business ownership can run the gamut in terms of products and services sold, it isn’t uncommon for candidates to consider hobbies that already interest them when producing ideas for a future company. However, it’s important to understand that sometimes, hobbies and businesses don’t mix well.
For example, let’s consider a hypothetical business owner candidate. Let’s call him “Phil.” One of Phil’s favorite pastimes is to hit the green for a round of golf. Since golf is already a longstanding interest, Phil is inclined to consider a franchise that sells a variety of golfing products: clubs, balls, tees, clothing, etc. However, before long, Phil’s working hours are consumed with all things golf, and his work days are filled with balance sheets, sales reports and expenses for golf products. Suddenly, escaping to play a few holes on the weekend isn’t the break away from work it once was.
When a favorite hobby becomes synonymous with work, you find yourself in a lose-lose situation. To avoid this overlap, examine the following three tips below for considering possible options.
1. Separate your personal hobbies from your business
Rarely can a person spend their leisure time and work time focused on the same thing. It’s basic Business 101 to diversify your investments, and a business is a large investment of your time, energy and money — so why would you keep all your eggs in one basket? Best practice: Separate your personal hobbies from your business.
Like Phil, you probably have a hobby or interest that helps you unwind after a long week. However, for a business to maintain longevity, sustainability is the name of the game. So take a moment to consider your hobbies, and rather than focusing on the hobby itself, take a look at the services that support that hobby.
If we take our friend Phil, rather than a golf store, maybe he selects a franchise of dry cleaning stores, hair salons or group fitness studios that service a community with fellow golf lovers. Another option might be a B2B franchise in which Phil doesn’t perform the services himself but is client-facing and responsible for relationship-building by taking prospective clients out to the green for an afternoon. Either of these options supports his entrepreneurial goals while maintaining his favorite pastime.
2. Be passionate about owning your business, not passionate about the widget
Being a business owner means having more control over your life in so many ways. The top motivators for an individual to become a business owner are autonomy, more flexibility, more purpose/meaning and financial security.
These benefits of business ownership and their ability to support yourself, your family or other financial and non-financial obligations outweigh the appeal of selling a specific product or service.
Building on the previous tip, a way to avoid misalignment between the product or service you are selling and the overall vision of the business is to focus on bird’s eye metrics of success. For example, owning a chain of cleaning stores might not be your dinner party small talk highlight that “golfing” might be, but who’s hosting the dinner?
Prioritize long-term goals over what sounds cool to sell — a.k.a. be passionate about owning a business and all the benefits that come from that, rather than being passionate about a specific widget you sell.
A common misconception about franchises in particular is that they are all centered around the fast-food industry. This makes sense: Everyone eats multiple times per day, hence a stable and recurring consumer base. However, any company that can benefit from proper branding, repeatable processes and continuing product or service evolvement is a candidate to be franchised. While it’s true that there are a number of successful restaurant-style franchises, there are so many other options that fall into the “service-based” franchise bucket.
In today’s business world, particularly with a younger generation of consumers, experiences are valued over material items. To support these experiences, a number of non-flashy but necessary service industry tasks are essential. What is a service that you use on a recurring basis that is not centered around food? Clean clothes perhaps? Monthly haircuts? Consistent trips to the gym? Phil would agree.
If there is a recurring customer need, then there is likely a franchise that is seeking to capitalize on that customer need.
At the end of the day, hobbies are a great place to start for brainstorming purposes, but think outside the box and ask yourself: What tangential services support your hobby or other hobbies that are similar in nature? Before long, you’ll have a list of services, and, to bury the lead, I guarantee there will be multiple franchises for you to consider associated with those services.
So remember these three key takeaways when considering business ownership: First, hobbies and business are best kept separate. Second, owning a successful business is the goal (not selling a specific product/service). Third, set yourself up for success by selecting a business that has a strong base of perpetually recurring customers.
Opinions expressed by Entrepreneur contributors are their own.
A few years ago, I was speaking to some friends and colleagues about a vision I had for a new franchise restaurant. I told them the brand had a unique concept and could quickly be on track to 1,000 worldwide locations. The responses were fairly consistent: incredulity and laughter. And these people were supposed to be my friends!
The brand we talked about was The Halal Guys, a company I work with. After an extremely successful 2022, one in which the company opened its 100th location — and with 300-plus more in development — it was tempting to then ask them, “Who’s laughing now?”
The plan was aggressive from the jump: We’d target the 50 largest markets in North America, then go international. Most of those major metro areas are covered now, and international expansion has begun with the UK and South Korea. Pulling this all off as quickly as we’d envisioned seemed impossible to a great many, but that ambitious mindset worked.
Here are some essential strategies I’ve applied in the course of taking more than 10 such brands worldwide.
There’s nothing a failing person likes to see more than someone else fail. So, it’s okay if someone doesn’t see your vision: It wasn’t their vision anyway, it’s yours.
My story about The Halal Guys isn’t an outlier. When you’re building, many people are going to root for you to tank simply because they aren’t winning, which often means that they’ll give you bad advice, encourage you to back off and/or withhold a helping hand. That’s why it’s so important to think positively about your brand’s potential and growth plan. Because challenges arise for young franchises daily, and panic doesn’t put money in the bank.
When I was helping PayMore through its initial franchise launch, it seemed that we couldn’t sell to anyone. Despite great unit economics and a scalable business plan, many thought its buy-sell-trade model seemed too much like a pawn shop, and in truth, we weren’t doing the company any favors by presenting it like one.
Still, there was no panic. We stayed positive and altered our presentation. It’s been a little more than a year now since we launched franchising, and over the last two months have completed more than a dozen deals encompassing 60-plus units. Put simply, positivity paid off.
Think aggressively
It’s important to have brand standards, but it’s also important to know when to bend them. You may be dead-set on only allowing multi-unit deals, for example, but the right single-unit deal can get the ball rolling for a stagnant brand, including attracting good press, which could lead to a multi-unit franchisee down the road.
Also, think about how you can incentivize franchisees to expand their territories because encouraging them to embrace affordable conversions could lead to quicker growth (keep in mind that this requires having the right design and brand standards in place). Thinking aggressively means being prepared to act fast when opportunities arise, so plan accordingly when building your business strategy.
Part of thinking aggressively is thinking big: Don’t be content with small, steady growth if your concept can handle rapid expansion. Don’t be afraid to go for it.
Building a brand that aims to be a household name is a lot easier with a solid team in place. I’ve always enjoyed getting my hands dirty, and I’ve never worked harder than I did for real mentors and with other people who have taught me about the industry.
Case in point: I’m working with a new brand out of Chicago called Cilantro Taco Grill. Their story is inspiring — run by a family of first-generation immigrants from Jalisco, Mexico, who built the restaurant as a tribute to their father and as a celebration of the authentic flavors they grew up with. They’ve dominated the quick-service Mexican scene in Chicago, in part because their business plan was born out of familial love. The company’s story and standards are authentic, and its food tastes better because of that.
This is just part of why it’s so vital to share your goals, and even more so to share your success. Team members should also be in line with the business plan and where the brand is headed — should be thinking positively and aggressively right alongside you. Of course, that requires the right workplace dynamic: People naturally invest themselves in people who take care of them, so incentivize success, offer quality benefits and provide a comfortable workplace.
The goal for any franchisee should be to get wealthy, certainly, which involves building towards an exit. This business, like virtually all others, is about growing an asset that has the potential to sell at peak value. That’s why you need to be positive, prioritize aggression and focus on building a team — with the very possible goal of attracting a buyer. A profitable five-unit franchise chain that sells at eight times its yearly income could potentially set you up for life — a return most other industries can’t offer in a comparable timeframe.
You shouldn’t be looking to create a job — heck, you can go find a job. Your future in franchising should be building generational wealth — for your family, your kids and yourself.
Opinions expressed by Entrepreneur contributors are their own.
Not everyone can or should become a franchise owner. It may seem like franchisors are overly aggressive in trying to sell franchises to new owners; however, a good franchise company is not looking to award a franchise to any random candidate who can afford the franchise fee.
Like any good business, a good franchise company knows it can only succeed with great people in the system. And every franchise system has a preferred profile for who will make a strong franchisee — typically based on analyzing successful prior franchisees and creating an ideal avatar for success.
The value of any good franchise system is a strong, consistent brand. A franchisor looks for franchisees who are a great fit for the services they offer and can provide consistency through business skills and acumen. For example, some franchises require more emphasis on sales leadership, while others succeed more through the execution and delivery of the service through team members.
As you proceed with the franchise investigation process, you should expect that a franchisor will have as many questions about you as you do about them. It is true that many franchisors desire to grow quickly — after all, many of them are new emerging companies also. Growing units more quickly allows them to invest in the infrastructure, assets and personnel to support a strong franchise network. But a good brand will be very careful to only award franchises to candidates who pass stringent criteria and they expect to be the best representation of the brand.
I always tell my candidates to treat the investigation process like a job interview. Once you get the offer, you have choices, but you need to put your best foot forward to get awarded a franchise. These companies are not selling used cars. Because they have to talk to sometimes dozens or even hundreds of candidates to sign a qualified franchisee, it may feel like you’re going through a slick sales process — and you are, for efficiency’s sake. But it is still selective. I have had multiple candidates rejected at Discovery Day when they don’t present well after meeting the founders and management team.
Here are some common reasons you might not qualify or get awarded a franchise.
Every franchise has a minimum liquidity and net worth requirement. There are many avenues to finance your business, and franchise companies will often put in place special financing programs — especially if they have unique equipment needs, fleet vehicles, etc. But at the same time, the franchisor wants to confirm you have adequate reserves for working capital, achieving positive cash flow and covering your living expenses while you ramp up. If you are undercapitalized, they want to avoid setting you up for failure.
2. Lack of business acumen
Harvard Business Review researchers found that the average age of entrepreneurs at the time of their company’s founding is 42. Franchisees likely skew even a little older, with many coming from corporate management backgrounds. As a franchisee, you don’t need industry experience, but you should have a strong foundation of leadership and management experience. Knowing you can lead a team, work with others and be a good partner are traits every good franchisor wants to see in a candidate.
3. Lack of availability
Many franchises have full-time requirements, which is not usually a problem if that matches the candidate’s needs. But I’ve had many franchise candidates who want to keep their corporate jobs and start a franchise on the side. There are a large and growing number of franchise companies that allow that and are structured to be run by a manager. However, there is no such thing as a truly passive franchise. If you are looking only for investment and have no interest in running a business, you won’t be a strong candidate for a franchise. Even for semi-absentee models, you need to have enough flexibility to be available to your general manager and handle the occasional business issue during regular work hours.
I’ve never told a franchise candidate that starting a business is easy. It’s not. So, it’s even more important that candidates have an abundance mindset and the mental fortitude to overcome obstacles. If a franchise candidate is negative and pessimistic before even getting started, how are they going to hold up emotionally when the inevitable challenges come up when starting a business? A franchisor wants to see a true entrepreneurial spirit in candidates before awarding them a franchise.
If you investigate a franchise company that is simply looking to add franchisees without any standards or qualifications, watch out for that brand. It’s not common, but like anything else, there are good franchise companies and bad franchise companies. If you have a hard time filtering all of the brands out there, you may want to engage a franchise consultant to help you focus on strong brands that will be invested in a long-term partnership to help you achieve your goals.
Nearly every franchisor wants to grow and add more franchisees. But the good brands are focused only on adding highly qualified and value-added franchisees. Having the right mindset as you go into the process will help you avoid seeing it as a one-way street. Yes, they are selling you the franchise opportunity, but you also need to sell yourself as a valuable and productive partner in their system. Make sure your capital, skills, time and attitude all line up with the prospective franchise system and put your best foot forward to be awarded a franchise.
Opinions expressed by Entrepreneur contributors are their own.
The old saying goes, “Sales cures all,” and that may be right, but how exactly does a savvy businessperson intending to grow a franchise go about boosting their sales numbers?
My inbox and social feeds are filled with “helpful” pitches by marketing professionals — digital marketing, PR companies, lead generators, funnels, text marketing… the list seems endless. It’s vital, in considering all these come-ons, that you not confuse efforts and results.
Think, for example, about how improvements in operations can compound sales growth. I call it the “10/10/10 Method:” By focusing on increasing daily customers, check size and visit frequency by 10% in each category, you’ll juice yearly sales in a disproportionality large way.
Take Five Guys: Its average franchise location does about $1.2 million in yearly sales — roughly 220 customers a day averaging about $15.00 per check. If you can attract just 22 more people a day, and manage to up-sell one additional item on each check, things change dramatically. I recently sat down with Fransmart‘s CFO and ran the numbers: Yearly sales would go from $1.2 million to $1.59 million — a 32% increase by being just 10% better.
Here are three ways to ensure that your 10/10/10 growth strategy is a success.
1. Nail that trial period
Most of your marketing budget, particularly in the early days, will be spent on getting customers to try your concept, so great operations and loyalty programs will keep guests coming back and spending more. Sweetgreen, for example, has a loyalty program that builds revenue by charging customers for extra perks, and it works. Rest assured: people will pay good money for a quality experience.
Grand openings are, of course, vital. These events are usually held between a month before and a month after you open and should be designed to create a buzz in the market. Break through the noise by being creative; add a twist to your messaging so people won’t want to miss out.
Be exhaustive in your research of the local market and tie your brand’s message and marketing into it. And, whether in tandem with opening events or in a separate effort, consider a discount or giveaway to give folks additional motivation to stop by. Give them a reason to invest, because good value and community support are equally vital.
When that crowd inevitably shows up, capture it in every way you can — whether in photos, video — heck, rent a drone and show just how far the line goes. A giveaway or other tempting draw may be great, but there’s no incentive better than the fear of missing out. If the community sees a massive line, they’ll be through the door soon.
Repeat customers are the most profitable because you don’t have to re-market to them. If someone enjoyed their first experience, the instinct is to repeat it, in the process hopefully trying other products. There’s no marketing or incentive needed to bring these people back through the door: Your brand is the draw.
Remember that marketing is an investment in repeat customers: it’s not a cost. Consider a customer who uses you two times a month and spends $10 each time: That person isn’t just the $10 they spend at that moment, but $240 a year and $2,400 over ten years. And that’s not even factoring in the word-of-mouth business they provide by bringing in friends.
Another major component of encouraging repeat business is making sure customers can enjoy your brand in whatever way they want, which means having a quality delivery program. You may cringe at the cost of developing your own, and/or partnering with third-party apps, but remember: This isn’t just about building incremental sales but building a relationship with a repeat customer who will pay full price the next time they drive by your business. That’s worth an investment.
Another vital consideration: The quickest killer of repeat business is making guests feel unsafe or uncomfortable. Great marketing might get someone through the door, but if they walk through a cobweb on their way in, it’s over. Ensure that locations are adhering to high standards of presentation, or all the other good work is wasted.
I once asked the founder of a popular burger brand what percentage of customers also ordered its fries and maybe a fountain beverage. “Everyone does,” he replied. “Well, most everyone. I think most do.” We watched the line for the next 10 minutes, and less than one-third of the customers were also ordering fries and a drink. Why? Because there was a line out the door and the cashier was trying to move it along instead of suggesting extras.
Once you have people in the door, you’re failing as a business if you’re not doing everything you can to maximize each sale. This is an art: You don’t want to apply undue pressure, but remember that you’re in business to sell, not just take orders.
To that end, customer service is more than a warm smile. People want a valuable experience, and that means having their needs met. Businesses should be prepared to ask good questions, identify specific needs and offer the right products to meet them. That means making sure the staff is well-trained. Suggestive selling will lead to a better experience if it’s addressing a genuine need.
Many businesses are turning to kiosks now to address the need for such selling. I love Wow Bao, an Asian concept in Chicago that’s nailing the ordering process. In the early days of the company, new customers were clogging the lines by asking a long series of questions when ordering, causing regulars to turn away and avoid the wait. In response, the company installed kiosks, and the check average went up by almost 20%! This has driven revenue growth while lowering labor costs and giving repeat customers a better experience… a truly winning formula.
Opinions expressed by Entrepreneur contributors are their own.
While today’s economic landscape is uncertain, making the right choices to build wealth isn’t something to take lightly. Choosing the right investment is not something that comes naturally to most people. In many cases, people save money or invest in a 401(k) plan provided by their employer. Others take on more risk by investing in individual stocks or practicing classic principles like the 60/40 rule of portfolio diversification.
Franchising can be a worthwhile option for those who want to expand their investment portfolio in the long term. It offers advantages with numerous benefits as a long-term investment strategy. The long-term growth prospects are exciting, and there are plenty of franchises (and their respective industries) to choose from.
Many examples of franchise investments in the food and beverage or health and wellness industries exist. Subway, Dairy Queen and Anytime Fitness, to name a few. With these particular brands, franchisees benefit from substantial brand equity and it helps that they’re built on proven business models, training and ongoing marketing and back-office support, including financial management tools and access to capital.
Several industries have recently been recognized for strength and viability even during turbulent or uncertain economic times, including the Great Recession of 2007-08 and the Covid-19 pandemic. These franchises have been referred to as recession-proof franchises, as many of them were called to the frontline to help provide baseline human and business services.
For example, one industry that continues to prove itself during strained economic times is commercial cleaning. Franchising opportunities in commercial cleaning are plentiful and many brands have survived and thrived during past recessions and global pandemics.
During the Covid-19 pandemic, commercial cleaning companies were relied upon to keep businesses (including hospitals, medical testing centers, doctor offices, grocery stores, etc.) clean and disinfected. Commercial cleaning suddenly became a topline business operation process as a redefined customer expectation, and the definition of cleanliness materialized. According to industry analysts, the commercial cleaning industry is expected to hit more than $468 billion in revenue by 2027. That’s a 51.67% increase over the market’s $308.7 billion value in 2020.
Building on an existing model
Master franchising is an investment many are discovering due to recent economic uncertainties. Master franchising involves taking control of a region or territory to expand unit franchises under the same brand umbrella.
As an investor looking to increase returns, the master franchisor aims to invest in an established brand through territory ownership and selling unit franchise models to local entrepreneurs looking to go into business themselves. As the regional franchisor, the investor controls high-level business decisions, such as marketing and sales, while the party franchisee staffs, manages and executes at their independent location.
The benefits of franchising go beyond just expanding your business reach. Engaged franchise brands help their franchisees in many ways, including financial management tools, marketing technologies and cash flow. By using your established brand, you can attract potential franchisees who may not have considered starting their own business otherwise.
In addition, the benefits of franchising as a long-term investment strategy are immense. One key advantage is that franchisees make decisions and are their own boss, allowing them to run the franchised business according to their preferences. When a franchisor welcomes a new franchisee into its system, they ensure the franchisee is well-equipped to take on this new venture. This includes extensive training, support, assistance and guidance in every aspect of the business. This allows for greater flexibility and control over one’s career path.
One significant benefit of franchising is that it allows investors to acquire a franchise and develop their own franchise company. This approach pays off as the franchise program provides access to a proven business model, which has been tried and tested in various locations. Additionally, franchising enables investors to open more locations under the brand, increasing the business they can generate. Buying into a franchise also means lower risk, as the brand network offers ongoing expert support while operating within an established business model.
Another significant advantage is the opportunity to invest in an established franchise business product already developed and modified for market success while operating under a recognized brand. Additionally, franchisors often modify their franchise agreements to suit individual franchisees’ markets.
Is franchising safer than a savings account or stocks?
Recent events in the banking and financial sectors are concerning for many people looking to build a portfolio that can sustain their lifestyle through retirement. With bank failures like Silicon Valley Bank and others, investors are nervous about cash sitting in savings accounts (not to mention the next-to-nothing returns) while the banks ineffectively raise investment rates against inflation. Investors are looking for other vehicles to utilize their cash where they can earn a more substantial return with lower risk. This is where franchising starts to look safe, attractive and viable, especially given the scrutiny of the franchise purchase process.
Franchise disclosure is a critical component of the process, offering prospective franchisees the opportunity to read about the rules, laws, and requirements before investing. The Franchise Disclosure Document contains a wealth of essential information, such as crucial operating details and locations of other franchise operators. This allows entrepreneurs, both experienced business owners and first-time investors, to make informed decisions about owning their business. The franchise rule requires franchisors to offer support to keep franchise operators’ employees and provides growth opportunities for owner-established investors.
Franchising might be an exciting option for investors looking for new and creative ways to protect their savings while putting their money to work. As with any decision, due diligence, research and learning are always recommended. Additionally, franchise investment is a topic of conversation that investors can engage with their fiduciary, wealth or financial advisor.
Opinions expressed by Entrepreneur contributors are their own.
More people than ever are curious about starting a franchise business. The potential rewards seem obvious, but the risks also seem high. Even more than risk and reward, starting a franchise requires a hard look in the mirror to decide if you really have the makeup to become an entrepreneur.
Here are seven questions you should ask yourself before starting a franchise business.
To take action and start a franchise, you need to understand your why, not necessarily the widget. Do you have a future vision of your life you’re trying to achieve? Think of that as the destination and the franchise as the car — the vehicle to help you get to the destination.
A clear future vision should include your involvement in the business, your career and the lifestyle you visualize for yourself. This will help you select the right franchise model that fits this vision.
2. Do I have confidence, grit, determination and resilience?
Every business owner in America had to deal with the impact of Covid-19. There will be unknown future obstacles when you start a franchise.
To move forward, you must bridge uncertainty with an emotional commitment and confidence to overcome obstacles. You must also have the grit and resilience to see through difficult periods. A franchise can help you launch more quickly than starting a business from scratch and will help you navigate any difficulties through best practices from a network of fellow franchise owners.
3. Should I go it alone or engage a franchise consultant?
Like shopping for a house, you can certainly find franchise opportunities on the internet. However, it’s a noisy environment with thousands of brands — and like everything else, some are good and some are bad. And no franchise brand shows its business model on its website, so you’re drawing conclusions purely from a consumer viewpoint.
You cannot easily find newer emerging brands on the internet and can waste tons of time investigating brands only to find out they’re not a fit. A franchise consultant, like a good financial advisor, will reverse this process and start with you and your goals, help you set your criteria and only then match you with franchise brands that fit. They then will guide you through the investigation with education and resources.
You should carefully consider your financial ability when starting a franchise. To understand the specific capital requirements for any particular franchise, you can consult Item 7 of the Franchise Disclosure Document, which details the Estimated Initial Investment. These are based on actual franchises and tend to be very accurate. However, make sure to build your own estimates, as these line items can vary significantly between franchisees.
While there are always exceptions, investment ranges can commonly be broken down into three categories. These include self-employment or work-from-home models; scalable executive service models; and semi-absentee or semi-passive models:
Self-employment or work-from-home models with few or no employees that do not require customer-facing real estate generally range from $75,000 to $150,000 in total investment per territory or unit.
More scalable, equipment-intensive service brands that do not require customer-facing real estate tend to range from $100,000 to $350,000 per territory or unit.
Brick-and-mortar location-based franchises require more real estate investment but tend to be more semi-absentee and can range from $250,000 to $1 million or more per unit.
5. How will I finance the franchise?
There are many options to help you finance your new franchise. If you have a former 401(k) or IRA, you can roll over a portion of your retirement account balances in your new business’ stock tax-free. Candidates also use personal loans, such as a home equity line of credit (HELOC) or a securities-backed portfolio loan, which have the lowest debt costs and easiest access to capital.
You can also obtain an SBA-guaranteed bank loan, which is a popular option. Many franchisors will have prearranged financing with preferred vendors. Regardless of your financing choice, it is important to consider it ahead of time to make sure your business and personal needs are covered during your business launch.
6. What franchise industry is right for me?
Many of my candidates are looking for a business they’re passionate about. Of course, you need to believe in your product or service, but it doesn’t need to be your hobby. It is the business model that needs to fit. For example, I owned a fitness franchise. While I’m not a fitness junkie, the business model fit and seeing the joy in our clients transforming their health was very gratifying.
Going through a deliberate process of investigating business models that fit your criteria and comparing them with the help of an experienced consultant is often the best way to find the right industry. By focusing on the business model and your role as a franchise owner, you will find the industry can be a secondary criterion.
7. Do I believe in continuous improvement or “if it isn’t broken, don’t fix it?”
If you have a more reactive style, franchise ownership is likely not for you. Owning a franchise requires you to constantly look at the business with an eye toward continuous improvement — making each process, such as sales, marketing, operations or customer service, continuously better for your customers. Having a proactive approach versus a reactive approach is critical to success.
While there are many considerations in starting a new business, fundamentally it is an emotional decision that starts with you doing some self-reflection. Asking yourself the hard questions will let you know if you’re emotionally ready to take the next step.
If you’re not ready, consider what changes or milestones in your life need to be achieved so you’re ready when the time comes. If you find you are excited and ready to move forward, seek out the resources needed to explore franchising and commit to follow through the process. This will bring you the confidence you need to find success.
Opinions expressed by Entrepreneur contributors are their own.
Layoffs are making headlines in 2023, with the tech industry feeling the biggest effects of this national trend. According to TechCrunch, layoffs in this sector, year to date, exceed the total number of tech layoffs in 2022. Other industries are streamlining employee payrolls as they look to a future of job automation through artificial intelligence. Even though getting laid off is a tough situation, there can be a bright side — a chance to embark on a meaningful path to entrepreneurship.
This endeavor may seem daunting at first, especially if you don’t have a unique business idea, but that makes franchise ownership a particularly attractive option. With a proven, successful business model, a built-in support system and brand recognition, a franchise offers a much easier way to jumpstart an investor’s business ownership dreams.
In order to attract this pool of potential franchisees, business concepts should highlight how their franchise, in particular, is a financially viable option and how it will continue to benefit the professional development of a prospective franchise owner. Former tech executives and aspiring entrepreneurs, in turn, should widen their lens when looking for their next career opportunity.
Franchising is a good fit for an opportunity-seeking entrepreneur
The unique advantage franchising offers is an established business model with a blueprint that has been refined over many business units and many years of successful operation. With that comes a brand identity that is already recognizable to consumers. Building a brand-loyal customer base is one of the most difficult aspects of starting a business from scratch. With an established franchising concept, you get brand interest, excitement and trust already built in.
The franchising business model comes with a corporate team equipped to help franchisees with support services relating to marketing, operations and business analysis, training and more. At Kiddie Academy Educational Child Care, we help our franchisees with all these aspects plus financing, real estate and construction, just to name a few. High-quality tools and technology systems afford franchisees access without the hassle of setting it all up on the front end. Finding a franchise organization that helps facilitate setup through pre-existing relationships with entities like lenders or real estate developers is key to success.
Because of all the resources available to franchisees, they often find they have more freedom as business owners than they did in the 9-to-5 (or 24/7) job they just left. Different franchise concepts have different time requirements. Potential franchisees can choose what best suits them.
Flexibility is always an added benefit in the workplace, and transitioning to franchise ownership offers many new options. Franchisees can build their business closer to home or start a new leaf in a place with a growing market. When you own your own business, you’re in control of your destiny — you don’t have to worry about the insecurity of working for someone else.
Newly laid-off professionals make the best franchise candidates
A laid-off tech professional can make a very strong franchise candidate. Franchisors who show potential franchisees how their skills can be transferred into a new career path can help grow their organization while providing an opportunity for qualified candidates who are looking to excel. It’s a mutually beneficial relationship.
Regardless of their background, successful business professionals who have had the unfortunate experience of being laid off usually have a strong work ethic and a desire for continuous learning and development, making them a perfect fit for a franchise organization. Job-seeking entrepreneurs should consider the growth opportunities — both personal and professional — that come with opening a franchise location.
Most franchise organizations are “no-prior-experience-necessary” opportunities because of the infrastructure and support systems in place to help their owners excel. Even if you don’t have a background in a field like educational child care, for example, with the right amount of passion and franchisor support, you can still become a successful business owner. Franchise ownership opens the door to experiencing an entirely new industry using the business expertise a potential franchisee has already developed in a previous career.
Franchise ownership allows professionals to live a life they love. Entrepreneurs can seek out opportunities in unique markets where they’ve always wanted to live and consider franchising as a means to relocate. There are also significant work-life balance benefits with franchising. Maybe franchise ownership for a particular organization means only working in the mornings or afternoons — or maybe not even showing up to an office at all. These benefits differentiate the franchising experience in a positive way.
Business professionals experiencing a layoff and franchisors can both benefit from taking a close look at how they can work together. Franchising isn’t for everyone, just like business ownership isn’t for everyone, but for those who are looking for career advancement, it’s a solid model to consider.
Opinions expressed by Entrepreneur contributors are their own.
So, you’ve decided to invest in franchise digital marketing to help grow your brand or business. You’ve got high hopes, a limited budget and a finite amount of time to start seeing results. You’ve done your homework and have vetted marketing agencies to help you, and now it’s time to choose one. Who do you go with?
Well, a lot will depend on an agency’s history and track record, vendor relationships, whatever specialties it may have and more. As a brand leader, you’ll be weighing numerous considerations; but as a person, you should pay special attention to the agency’s human resources, particularly its team of digital marketing account managers, because it’s the account manager who will oversee your marketing world. They can frustrate or confuse you or reassure you that all their hard work and your money are paying off. The stakes can be quite high.
In many ways, the account manager is the unsung hero of the digital marketing world. They juggle dozens of balls at once and are expected to have all the answers (and some of them do!). Realistically, it’s the account manager’s job to regularly collect information from multiple sources and make the connections that’ll help them tailor their marketing approach, meet deadlines, set goals and help you understand the value of your digital marketing spend. If that sounds like a lot, it is — and it’s often easier said than done — which is why successful franchise marketing depends very much on the skills, experience, and dedication of your account manager. Given that, what should you look for in a good one?
The first thing you should expect of a good account manager is a demonstrated skill set that lets them navigate the wild and wooly world of digital marketing. From interpreting hard data to adjusting client budgets, making course corrections, and communicating with website developers, writers, vendors, and more, your account manager should be completely comfortable actually doing what the job title suggests — managing people, deadlines, data, expectations, and more. If they don’t have a good handle on the demands of the job, if they can’t multitask and stay calm under pressure, you could be in trouble.
Being able to interpret information, set goals, and manage situations and people is extremely important, and good account managers do it all the time. But good isn’t always enough. Sometimes, situations demand more, and when that happens, you’ll need more than a good digital marketing account manager — you’ll need a great one. But what separates the two?
The great account manager
In my experience, the answer is soft skills — the talents, instincts and values that can’t be measured but can help all of us be better at our jobs (and life) and that allow great account managers to deliver the goods during exceptional or challenging times.
Transparency is one of those soft skills. Nobody likes to be lied to, least of all people with thousands of dollars at stake. Great franchise digital marketing account managers know the value of honesty, even if telling the truth is difficult. They never blur the line between fact and fiction and always understand that it’s better to be the bearer of bad news than to stay quiet. Great account managers always tell it like it is, whatever that may be so that clients can decide (often with the help of their account manager) what the next steps should be.
Another soft skill that helps define a great account manager is intuition. Skilled account managers don’t just rely on their heads; they often go by gut instinct. They see something — say, a slight drop in organic traffic — and dig deeper. They talk to their SEO specialists, they check to make sure their client’s website is working properly, they determine the dip isn’t related to something seasonal, cyclical, or algorithmic, and above all else, they don’t panic.
The nature of digital marketing is that it’s a fluid, dynamic approach that’s measured over months, and even years, not days. A great account manager knows that and makes sure the client does, too.
Perhaps the most important quality to look for in an exceptional account manager is empathy because when an account manager can empathize with a client, they feel that person’s hopes and fears enough to want to help them. An account manager who understands that good digital marketing has less to do with KPIs and keywords and more to do with being human is better equipped to answer a client’s questions, address their concerns and celebrate their digital marketing victories. Really, what empathy recognizes is the relationship between the account manager and client, and acknowledging that relationship can have a powerful effect on outcomes.
At the end of the day,franchise digital marketing account managers — good, bad or great — are human beings with feelings and goals, too, and they appreciate your feedback. If you’re working with one who isn’t meeting your expectations, politely let them know and try to find ways to make improvements. If that’s not possible, don’t be afraid to request a new one. Agencies strive to ensure there’s a good fit between clients and account managers because they know how much depends on it.
On the flip side, if your account manager is knocking your socks off, delivering leads and hitting KPIs, make sure you let them know you appreciate their commitment to your growth; it’s more than being complimentary. When it’s all said and done, keeping the channels of communication open and honest will go a very long way toward maximizing your ROI.
If you’re in the process of becoming a franchisee or curious about what it entails, then you should familiarize yourself with the ins and outs of a franchise agreement — and that starts with what it contains.
First, let’s review some basics: A franchise agreement is a legal contract between the franchisor and the franchisee. It outlines all the terms and conditions of the franchise relationship before it officially starts. Both parties must understand the terms of the agreement before signing — or else either side runs the risk of some serious consequences.
Read on for everything that should be included in a franchise agreement, so you’re prepared before it’s too late.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
Franchise fees and ongoing royalties
The franchise agreement should specify the initial franchise fee, which is the upfront payment to the franchisor for the right to use its trademark and business system. Think of it as the price you pay for not having to build a business system from scratch.
This fee might be paid in a lump sum or installments, and it typically covers the initial training and support the franchisor will provide.
The franchise agreement should also include the ongoing royalties that the franchisee is required to pay to the franchisor. Royalty fees are typically a percentage of revenue, and they can be flat or on a sliding scale. The royalty fees can be paid weekly, monthly or quarterly and cover the franchisor’s continued support, marketing and advertising.
One of the benefits of franchising is the ability to expand into different areas, cities and even countries. To avoid conflicts between franchisees in the same area, the franchise agreement defines the territory in which the franchisee is authorized to operate the franchised business.
This could include a specific geographic area, a particular city or a specific address or location. It should also specify whether or not:
The franchisee has the exclusive rights to operate the business within a territory
Other franchisees can operate in the same area or nearby
The franchisor can open additional franchises in the same territory
Operating standards and training
An important aspect of franchising is a uniform training and operating model. This can include product quality, customer service, advertising, training and more. The franchise agreement should specify the operating standards the franchisee must abide by to align the individual franchise with the integrity of the larger brand.
The franchise agreement should also specify what the franchisor will provide in terms of the type and amount of training and operating support. That said, franchisors must provide appropriate training to ensure the franchisee understands and effectively implements the franchise standards.
It might go without saying, but one of the reasons a franchisee embarks on a franchising journey is to use the franchisor’s trademarks, logos and other intellectual property. The franchisor grants the franchisee a license to use this intellectual property exclusively for the franchised business.
These stipulations should all be in the franchise agreement. The franchise agreement should also outline the restrictions on the franchisee’s use of intellectual property to protect the franchisor’s brand.
Term and renewal
The franchise agreement should specify the term of the franchise relationship. The term is the length of time that the franchisee is legally allowed to operate the business. Terms can range from several years to several decades, and they can vary from location to location. The franchisor has the right to offer a renewal option that allows the franchisee to renew the franchise agreement for another term.
The franchise agreement should contain the renewal conditions, such as meeting key performance metrics, paying all necessary fees or meeting other goals. The franchisor also has the right not to renew the agreement if the franchisee fails to meet the conditions for renewal.
The franchise agreement should specify the conditions under which either party can terminate the franchise agreement to avoid having to wait until a term ends. Terminations can be due to contract breaches, insolvency, failure to meet performance standards or just by mutual agreement and should be defined in the franchise agreement.
The franchisor should also include a default clause in the franchise agreement to protect itself. Default clauses outline the remedies available to the franchisor in the event of contract breaches or early terminations.
A breakdown of financial disclosures and obligations should be listed in the franchise agreement, such as initial investment costs, ongoing expenses and financial reporting requirements. The franchisee should have a clear understanding of the costs and financial obligations associated with the ongoing operations of a franchised business.
Advertising and marketing
Franchises typically run national advertising campaigns, so individual franchisees are not responsible for television commercials or other marketing strategies. But to pay for this, the franchisee is required to pay ongoing advertising and marketing fees to the brand’s national advertising fund, outlined in the franchise agreement.
There may be opportunities for franchisees to conduct their own advertising in their local territories, which can also be outlined in the agreement.
Key takeaways and what to do next
Franchisees should have a clear understanding of what a franchise agreement entails before signing the dotted line — and they should be wary if the contract is vague. To better understand the terms and conditions, franchisees should seek the advice of a franchise legal professional before moving forward.
The franchise agreement is the contract between the franchisor and franchisee, but it’s not a “standard” or “form” agreement. The format of the contract differs from one franchise system to another.
While each franchise agreement will differ in style, language and content, all franchise agreements have covenants, each of which describes a promise, right or duty that the franchisee or franchisor owes to the other or that benefits the franchisor or franchisee. The following is a list of those covenants that one most often sees in a typical franchise agreement. (The franchise agreement on our companion website will have the specific language that addresses each covenant.)
Related: Considering franchise ownership? Get started now and take this quiz to find yourpersonalized list of franchises that match your lifestyle, interests and budget.
1. Grant of franchise
The “Grant” section lets franchisees know that the franchisor is granting them the limited, non-transferable, non-exclusive right to use the franchisor’s trademarks, logos, services marks (called generally the Marks) and the franchisor’s system of operation (often called the System) for the period of time defined by the franchise agreement. The franchisee receives no ownership rights to the Marks or the System, and the franchisor always retains the right to terminate the franchisee’s grant-of-license because of a breach of the franchise agreement.
2. Opening date, territory limitations, build-out and similar rights
This covenant describes the franchisee’s territory (be it exclusive or not) and sets up a time schedule by which the franchisee must find a brick-and-mortar location, must have the plans for the unit approved and must be built-out and opened. This section may also disclose other matters such as the computer equipment needed to operate the business and the like.
This section will disclose the fees more specifically described elsewhere in the agreement. The fees include the initial franchise fee, any fees paid to the franchisor prior to opening, any fees paid to the franchisor during the term of the franchise, all advertising fee obligations and the like.
4. Advertising
In this section, the franchisor should repeat the franchisee’s advertising obligations as they’re stated in Item 11 of the franchise agreement (and the fees for which are identified in Items 5, 6, 7, 8 and 11 — as applicable).
5. Term and renewal
This covenant spells out the term (length of time) of the franchise agreement measured from the date the franchise agreement is signed to the date that the franchise agreement expires. If renewal rights are granted, this section will also spell out the prerequisites of this arrangement.
6. Services offered by franchisor
Though not all franchisors will repeat the pre-opening and post-opening services that they offer the franchisee in the franchise disclosure documents, sound drafting principals will require that these matters be repeated in the franchise agreement. Including them in the franchise agreement, however, removes the specter of litigation as a way to insert rights into the contract that aren’t otherwise stated.
7. Protection of proprietary information, marks and other intellectual property
As discussed in the “Grant of Franchise” section earlier, the franchisor is granting only a temporary license to the franchisee. Most franchisors will enforce this understanding by adding specific language that identifies each item that makes up its proprietary, confidential and trade-secret information and by then stating the limitations that are placed on the franchisee’s right to use such information. It is important protection for the franchisor and is not usually a covenant missing from the franchise agreement.
This section should disclose any training offered by the franchisor, including any additional training, seminars, meetings or the like that the franchisor will either require or urge the franchisee to attend.
9. Quality control
As the name suggests, franchisors will address the franchisee’s specific quality-control requirements. This is sound franchising and is necessary to insure that the goods and services offered throughout the system meet the franchisor’s minimum requirements.
10. Transfers
Virtually all franchise agreements control the franchisee’s right to transfer their interest in the franchise relationship. This section will list the prerequisites to a transfer.
All franchise agreements will contain some recitation of the violations of the franchise agreement that will be treated as a breach. These violations may be divided into those breaches that result in the immediate termination of the franchise agreement, for which no cure is given, and those violations for which cure is provided.
12. Obligations upon expiration or termination
Once the franchise relationship has ended — either because the term has naturally concluded and no renewal has occurred, or because the franchise agreement was terminated — it is typical for the contract to list a series of steps that the franchisee must take to “de-identify” the business and the franchisee’s association with the franchise system.
13. Franchisor’s right of first refusal
Most franchise agreements give the franchisor the option, but not the obligation, to exercise a first right refusal to purchase the franchisee’s business — in the case where the franchisee seeks to transfer the business, or the first right to purchase the franchisee’s assets at the time that the franchise agreement expires or is terminated.
14. Relationship between the parties
Franchisees are always treated as independent contractors of the franchisor. This has several important implications. An independent contractor is not an employee or agent of the principal. Instead, the independent contractor is in business for themselves. The parties to this relationship pay their own taxes, hire on their own, are responsible for their own employees and generally operate independently of the other in carrying out the contract between them.
All franchisee agreements will contain an indemnification covenant, which means that the franchisee will reimburse the franchisor for any losses it suffers as a result of some negligent act or wrongdoing of the franchisee. These covenants are almost always one-sided in favor of the franchisor — which is fair, given that the franchisee and not the franchisor is responsible for the day-to-day operation and maintenance of the business.
16. Non-Competition covenant and similar restrictions
A non-competition covenantis one that seeks to prevent the franchisee from opening a business that would compete with the franchised business. Virtually all franchise agreements will have non-competition covenants. The covenant is often broken into two parts: the “in-term” covenant; and the “post-term” covenant.
As the name suggests, the in-termcovenant prevents the franchisee from competing against the franchisor and any other franchisees while the franchise agreement is in force. Typically, this covenant covers a geographic area around each franchised, company-owned and affiliate-owned business. The post-termcovenant covers the former franchisee after the franchise agreement expires or is earlier terminated because of an uncured breach.
This covenant spells out the methods the franchisor uses to resolve disputes with franchisees.
Most often one will see at least a nonbinding-mediation requirement followed by a binding-arbitration requirement. In other cases, these two methods of resolution will be preceded by the requirement that the parties first meet face-to-face.
18. Insurance
All franchise agreements will require the franchisee to obtain insurance to cover its business operations. In all cases, each of the franchisee’s insurance policies will require that the franchisor be named as an “additional insured,” meaning that the franchisor enjoys the same coverage as does the franchisee, even though the franchisor is not paying for the coverage.
19. Additional or “miscellaneous” provisions
This is kind of the catch-all section of the franchise agreement that contains what some call “boilerplate” language, meaning that it is “usual” that such language be included in any contract. In virtually all franchise agreements, you’ll see covenants that cover mergers, modifications or amendments, non-waiver provisions, state-specific addenda and more.
The heart and soul of the disclosure portion of the Franchise Disclosure Document (FDD) — and indeed its very purpose — is set forth in the Items. Each Item is given a specific title (which cannot be altered), and within each Item, the franchisor is required to provide the answers to a myriad of FTC-mandated questions. For a complete list of the questions in each Item, take a look at the NASAA Guidelines on our companion website.
Following is the list of Items, along with a brief description of the content to be found there.
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Item 1: The franchisor, any parents, predecessors and affiliates
Item 1 gives you the franchisor’s background and that of any parent company, predecessors and affiliates. A predecessoris defined as “a person from whom the franchisor acquired directly or indirectly the major portion of its assets.” An affiliateis defined as “a person controlled by, controlling, or under common control with the franchisor.”
Item 2: Business experience
This Item gives you the past five years’ worth of the personal business experience of the franchisor’s directors, trustees, general partners, officers and any other individuals who’ll have management responsibility relating to the offered franchises.
Item 3: Litigation
In this Item, the franchisor must disclose any material litigation involving the franchisor and predecessor, parent and affiliate, if the litigation involves claims about the franchisor’s sales process, their performance under the franchise documents and claims of antitrust, fraud, unfair or deceptive trade practices, or comparable allegations. The franchisor must also disclose any franchisor-initiated litigation against its franchisees and any other business litigation (even if it’s not franchise-related) if, at the end of the day, the litigation negatively impacts the franchisor’s financial condition or their ability to operate a franchise.
This Item must disclose any bankruptcy in the past ten years that involved the franchisor and any parent, predecessor, affiliate, officer or general partner of the franchisor, or any other individual who will have management responsibility relating to the sale or operation of the franchise.
Item 5: Initial fees
Here, the franchisor (and any of their affiliates) must disclose all of the initial fees they charge to the franchisee before opening. Such fees include the initial fee paid to purchase the franchise rights (often called the “initial franchise fee” or IFF), computer or point-of-sale equipment that must be purchased only from franchisor or their affiliates, and similar fees.
Item 6: Other fees
This section of the FDD advises you of any other fees you’ll have to pay to the franchisor or an affiliate as well as costs that are collected by the franchisor for third parties, or that are otherwise imposed. Line items include a statement of the royalties, advertising fees, service fees, training fees, renewal fees and other similar one-time or ongoing charges.
Item 7: Estimated initial investment
In this section, the franchisor must disclose a range of the minimum and maximum of all fees, costs and expenses that the franchisee will incur prior to opening the business, including the initial franchise fee, real property expenses such as rent and construction costs, the cost for computer equipment and similar line items. The expenses must include both pre-opening expenses and those incurred during the “initial phase,” which is at least three months or a reasonable period for the industry.
Item 8: Restrictions on sources of products and services
Franchisors require franchisees to buy the goods and services needed only from approved vendors. This section lists the approved vendors and also calls out the franchisor’s specifications for permitting a new vendor into the system. It will identify any revenue the franchisor receives from the required purchases, including rebates received by the franchisor from any supplier.
Item 9: Franchisee’s obligations
This Item lists your obligations as a franchisee, with references to the sections of your franchise agreement that contain the obligations. The purpose of this is to identify your principal obligations under the franchise agreement and other agreements.
If the franchisor sponsors financing for new franchisees, it will be spelled out in this section.
Item 11: Franchisor’s assistance, advertising, computer systems and training
This is one of the more lengthy and important disclosure Items. In this Item, the franchisor must disclose:
The services they’ll provide to the franchisee before and after opening.
All advertising expenditures you’re expected to assume.
The average time it takes a franchisee to open.
The type of computer and similar electronics necessary to operate the business.
A detailed description of the training you can expect to receive.
The table of contents of the operations manuals.
Item 12: Territory
The franchisor must disclose whether it offers franchisees an “exclusive territory” within which to operate the business. With an exclusive territory, the franchisor promises that it won’t permit another franchisee to locate within the territory and that it will also refrain from putting a company-owned or affiliate-owned business there. This Item must also disclose whether you can relocate, and if so, what the criteria are for your move and whether you have any rights to purchase additional units.
One of the more important disclosures in this section is whether you’re required to meet a quota or perform in some other manner as a way of insuring either your right to an exclusive territory, or your right to continue in business at all. This Item will also disclose the franchisor’s reservation to itself of certain marketing and sales rights either within or outside any territory.
Item 13: Trademarks
This section must identify each principal “Mark” (trade name, trademark, service mark, service name or logotype) to be licensed to you, and must state whether the franchisee is required to modify or discontinue use of a mark under any circumstances.
Item 14: Patents, copyrights and proprietary information
The section spells out the patents and copyrights held by the franchisor.
Item 15: Obligation to participate in the actual operation of the franchise business
This section discloses whether the franchisee must personally participate in the operation of the franchise. If there’s no such requirement, this section must state whether the franchisor recommends such participation, whether the person who’s handling day-to-day operations must complete the franchisor’s training program and whether this person must own an equity interest in the franchisee entity.
Item 16: Restrictions on what the franchisee may sell
In most cases, the franchisor will require the franchisee to sell only the goods and services that are part of the franchised business. This section spells out those restrictions.
Item 17: Renewal, termination, transfer and dispute resolution
Item 17 contains a cross-referencing table to the franchise agreement for 23 separate line items. It’s different than Item 9 in that it includes a concise statement of the content of the particular franchise-agreement covenant as well as the location of the covenant in the agreement.
This section requires the franchisor to disclose whether it uses a famous person to endorse the franchise. If so, it must disclose the compensation paid or promised to the person, the person’s involvement in management or control of the franchisor and the amount of the person’s investment in the franchisor.
Item 19: Financial performance representations
In layperson’s terms, a Financial Performance Representation (FPR) is any document, chart, arithmetic calculation, math formula or other representation that would allow a potential franchisee to determine what they could earn. The only way the franchisor or its sales staff or brokers can offer an FPR is if it’s stated in this Item 19. If no such information is found in Item 19, any claims made by the franchisor as to your potential earnings are in violation of the law.
This section provides information regarding existing outlets in the franchise system. It covers outlet transfers — and the status of franchised and company-owned outlets — for the past three fiscal years, as well as projected openings for the next fiscal year. It must also provide information regarding any reporting changes, any confidentiality clauses signed by franchisees during the past three fiscal years (“gag clauses”), and information about certain trademark franchisee associations.
The FDD must contain an exhibit with the franchisor’s audited financial statements for the prior three fiscal years. If the franchisee has been open less than three years, the FTC allows the franchisor to phase in audits. The franchisor is also required to provide a separate, audited financial statement for a company controlling 80 percent or more of the franchisor.
Item 22: Contracts
This section requires the franchisor to attach to the FDD a copy of all form contracts the franchisee will sign, including the franchise agreement, leases, options and purchase agreements.
Item 23: Receipt
In this final section, the franchisor is required to include as the last page of the FDD a form for the prospective franchisee to sign to acknowledge receipt of the FDD.
Bubble tea, or boba tea—a traditional Taiwanese drink filled with tapioca pearls—is exploding in popularity in America. We spoke with Kung Fu Tea‘s marketing manager Matthew Poveromo about how the franchise brand, which is ranked No. 57 on Entrepreneur’s 2023 Fastest-Growing Franchises list, is harnessing that trend to accelerate growth.
How did Kung Fu Tea get started?
Our four founders are from Taiwan, and they saw an opportunity to bring authentic Taiwanese bubble tea flavor to America. They opened April 30,, 2010 and took about a year for proof of concept, opening 13 stores and just working through the menu and really building out the infrastructure that allowed them to grow pretty rapidly when they opened up for franchising in 2011.
So what exactly is bubble tea?
Bubble tea, or boba tea, comes from Taiwan, and it’s a traditional drink with either tea and milk or tea and fruit. Its most identifiable characteristic is these tapioca pearls at the bottom of the drink, and you have a larger straw so you can chew on these while you drink, and it’s super delicious. It was created in the ’80s in Taiwan and it came over to America in the ’90’s, mainly in urban areas with more diversity. But as demographics shift in America, you’re now seeing it being embraced more and more in rural communities as well.
Why do you think bubble tea is becoming more popular in America?
It was traditionally very big in cities and still is, but as people are leaving those cities, they’re bringing this culture with them and sharing it with friends. It’s a very communal, social drink. And also, when you are thinking of having a treat with a friend, bubble tea is a very strong alternative to traditional desserts. With bubble tea, you can control the sugar level and the ingredients that you’re putting into it. It can be a very guilt free indulgence, so it’s kind of riding the health trend.
With that rising popularity, there are more and more brands offering bubble tea now. How does Kung Fu Tea stand out from the crowd?
Some of the other brands have a much larger global footprint, but maybe not necessarily in North America. Kung Fu Tea is focused on being “America’s Bubble Tea,” so everything we do, from menu design and flavor profiles to brands we partner with, has this goal in mind. We’re focused on providing an authentic Asian and Asian-American experience, while at the same time helping the drink become more mainstream in American culture.
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I also think it’s our fearless brand. It’s part of our identity that we’re a little more bold and in your face, which I think a lot of people can relate to. And you see that in our social following. We’re really focused on building a community on our social platforms. Related to that community building, we founded National Bubble Tea Day on our eighth anniversary, April 30th, 2018, and it’s fun to see other brands in the space now celebrating it with us.
What does Kung Fu Tea look for in its franchisees?
When we onboard franchisees in our corporate office in New York, we always ask them, ‘Why Kung Fu Tea?’ and the biggest thing is just their experience with the drink. They’re very passionate about the industry, the product, and specifically our brand and the quality we put behind our fresh tea. We’re not exclusively looking for people with franchise history or business history. What we are looking for is adaptability. The industry is always changing, so having store owners who understand that this is a fast-moving industry and are there to grow with us is priority number one.
What are your goals for 2023?
The number [of open stores] we’re circling on our whiteboards is 410. And for systemwide sales, we’re aiming for $240 million. So those are two ambitious numbers to hit, and we’re very excited.
What strategies do you have for hitting those numbers?
One of the biggest is we have some partnerships lined up for 2023 which I’m very excited about. In 2022 we partnered with Nintendo to promote their newest Kirby game. We developed a custom cup and a custom flavor called Kirby’s Fruity Flurry that was available for a limited time. It got our customers super excited. People made fan art and comics based on it, and that’s how you know it’s a successful program—when people don’t just like what you created, but it inspires them to create as well. So those are the types of partnerships we’re looking to continue in 2023, with iconic brands and household names.
We’re also excited about our app, which was essential for us these last few years, as it was launched right before Covid. Now we’re overhauling our reward system and working on just having a top tier app and streamlining the ordering process. Ordering bubble tea can potentially be intimidating because you have the ability to control the ice level, sugar level, toppings, and flavors. So having an app that breaks that down in a simple way is very important.
Finally, we also have two other concepts, TKK Fried Chicken and Yasubee Ramen. We’re really excited about offering dual concept stores to expand our portfolio offering not just for franchisees but for our customers as well.
You can assume a few things about The Brothers that just do Gutters. First: They just do gutters. Second: They’re founded by brothers. What you might not guess is that they’re also one of Entrepreneur’s Fastest-Growing Franchises of 2023, coming in at No. 95. Ryan Parsons (who cofounded the company with his brother Ken) talked to us about how their singular focus has led to success.
So—do you really just do gutters?
Pretty much, yeah. Gutter cleaning, gutter maintenance, gutter repair, gutter guards. The riches are in the niches, as we like to joke. So all of our advertising, all of our marketing, everything is 100% geared towards one trade. When you’re doing everything, you need every tool in the book, and you need a lot more skilled labor. By hyperfocusing on one thing, our training program’s unbelievable. We’re able to just do one thing and do it really, really well.
How did you get started?
Around 1997 or 1998, my brother Ken had graduated college with a teaching degree and was trying to get a full-time job teaching, but was just getting bounced around. He met a gutter guy who said, “Hey, you should install gutters,” and he said, “Yeah right.” But then he started developing a relationship with this guy and saw his lifestyle. This guy had a plane, a nice house, four wheelers, snowmobiles. My brother likes to joke that he literally took his degree and threw it in the gutter. He worked for this guy for one summer minimum wage and no benefits, but he had the vision that if he could learn this and then go out on his own, he could improve his own lifestyle.
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Meanwhile, I was doing graphic design and started working for my brother hanging gutter on the weekends to make some extra money. When the dot-com I was working for went out of business, I found myself working full time for my brother. And coming from graphic design, I quickly saw the opportunity we had as far as building a website. This was around 2002, when nobody in the trades had a website. We were the first by years. We were the first to stop using the Yellow Pages and concentrate on digital and paid. And we started to build a company and I bought in and became a partner, and we were growing really strong up until the recession around 2008.
How did you do during the recession?
Before the recession, we had diversified our services, because we had so many clients saying, “I wish you did more than gutters, because I’d hire you for everything.” So we hired somebody that could run a construction division, and before you know it, we were building homes and doing kitchen remodels… and losing a lot of money. Because if you mis-bid a kitchen remodel that takes months to finish, you’re losing money for months. If you mis-bid a gutter job, those four hours kind of suck, but you learn and move on to the next job.
Every time payroll was getting tight for the construction company, we would basically steal it from the gutter company—because the gutter company was still doing great. So we ended up with no money in both companies and in the midst of a recession. It just hit us so fast. We were young and never saw a recession coming, and we almost went out of business. From that point forward, we closed the construction company and decided to just do gutters.
Up until that point, we did business as Waterfall Seamless Gutters, but coming out of the recession, we wanted to concentrate on who we are, and after a brainstorming session, we came up with the name The Brothers that just do Gutters.
How did you get started franchising?
A lot of people thought we were a franchise already, so coming out of the recession with all we’d learned and the new branding, we decided that we should franchise. But we took our time perfecting the model. We launched two pilot locations in 2010 and they helped us improve everything, until we were ready to begin franchising in 2014.
I also talked to colleagues I knew who were franchisees with various brands, and several of them told me that it’s all about support and the best thing you can do as a franchisor is create a win-win. And that’s why we took so long, because until we had the infrastructure to support franchisees, we didn’t feel comfortable franchising. So before we had our first official franchise open, we had a call center, a coach, and a marketing team. We were doing all these things on day one.
Your growth has really accelerated these last few years. How?
Starting out, we were able to get some franchisees organically, but we grew very slowly—two or three franchisees a year, and they were doing very well. We were really good at getting someone who’s never been in business from zero to a million. But we really felt the pressure that we were not growing fast enough. We realized we’re really good at this business, but we have no idea how to find franchisees. So we got introduced to the concept of an FSO, a franchise sales organization. We teamed up with an FSO, and when they looked at our infrastructure, our unit economics, our FDD, and how well our franchisees validated, they were blown away. So they were able to package who we were better than us, and they went to the consultant networks and the consultants loved our concept. And they just crushed it for us, so now we’re growing exponentially.
Because we overbuilt our system, because we had all the support in place already, and then we teamed up with the FSO, I think it was all just perfect timing.
The following excerpt is from franchise expert Mark Siebert’s book The Franchisee Handbook. Buy it now.
When it comes to funding a franchise, how much is enough? The answer is simple — more than you need.
Consider this: More startup businesses fail because of undercapitalization than for any other reason. So where do you start? You need to determine how much you can invest and how much you are willing to invest. You might find those two numbers are different.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
How much can you invest?
This answer lies in your net worth. To determine that, you should create your own personal balance sheet.
Start by adding up all your assets to determine how much you own: cash, checking accounts, investments, home value, personal property, retirement accounts, business interests and other assets of value. Next add up everything you owe (called liabilities): credit card debt, mortgage debt and other loans.
Your net worth figure represents an approximation of the capital available for you to invest in a franchise. You must next decide how much of that you are willing to risk on the franchise.
The amount of capital you are willing to risk is not necessarily the same as the amount you have to invest. You may choose to invest only a fraction of your net worth in the franchise, or you may choose to invest more using the sometimes dangerous magic of leverage.
Leverage is like wine — wonderful if you know your limit
In quantifying how much you are willing to risk, you must understand the concept of leverage. Leverage, or your ability to use borrowed money for an investment, is like wine — it’s great in the right quantity, but too much can kill you. While leverage increases your potential return, it also increases your risk.
To understand the power of leverage, let’s use the everyday example of buying a home. If you were to purchase a $200,000 home today, you might be able to buy it with 10 percent down. With monthly payments of perhaps $900 per month (without taxes and insurance), you figure you can afford it because you and your spouse each take home $2,000 per month.
Over the next three years, let’s say you increase your paid-in principal by about $9,000. Thus, the average equity you have in that home will be a little over $24,500.
If you then decide to sell the home, the selling price is dictated based on the market, regardless of your equity position. Thus, if real estate has been booming, you may be able to sell your property for $230,000. Without factoring in closing costs or commissions for the sake of this analysis, your three-year return on your total investment of $200,000 is around 15 percent. But your three-year return on the $24,500 in average equity you invested will be $30,000/$24,500 — or about 122 percent!
That’s great news, but things don’t always work out that well. Anything can happen, from unexpected medical bills to natural disasters. What if you or your spouse is laid off? Can you still afford that home on only $2,000 a month?
Apply this same principle to your investment in a franchise. Perhaps you have a net worth of $500,000. But since a lot of your capital might be tied up in your home and retirement savings, you only have $100,000 to invest in your franchise. You will need to decide whether to leverage yourself into a higher investment with a higher potential return.
So how much is too much?
There are two factors influencing the answer to that question. The first is you — how much of an appetite for risk do you have? Remember, your banker is going to take a security interest in your assets.
So even though you invested $100,000 of your capital out of pocket, if your franchise business fails, they may go after your house or other assets. While your equity investment may only be $100,000, your total investment will include the money lent to you by your bank.
The second part of this equation is your banker or other lender. Generally speaking, bankers and/or Small Business Administration (SBA) lenders like at least 30 percent of the initial investment to come from your personal equity. So conceivably, you could leverage a $100,000 investment up to $300,000 or so.
Your ability to leverage your investment will be dictated by a variety of factors:
Any collateral you can offer in the business
Anticipated cash flows
Your credit score
Other sources of income (e.g., passive income or spouse’s earnings)
Your banker’s opinion of the franchise
Your banker’s opinion of youas a franchisee
Meet with your banker
One step you can take early in the process is to speak candidly with your banker. While you will certainly need to have a more detailed conversation once you have chosen your franchise, your banker (or several bankers, if you have the time to speak to more than one) can give you a great idea of acceptable risk.
At this stage, the one thing you cannot show them is your projected earnings or the operating costs of the franchise. Bring what you have to your banker and ask for advice on how much you could reasonably afford to borrow.
Once you have met with your banker and have a good feel for your available capital, your risk tolerance and your ability to leverage your way into a franchise, you are ready to begin the screening process to help you narrow the field.
In The Franchisee Handbook, franchise expert Mark Siebert walks you through the process of vetting and buying a franchise, helps you ask the right questions of franchisors and yourself, and gives you the resources you need to decide if franchising is right for you. Siebert shows you how to do your homework before making what could be the greatest financial decision of your life. You will learn how to:
Accurately assess the risks of buying a franchise
Determine if a franchise is a good fit for your personal goals
Research and vet potential franchise opportunities
Create a startup plan that meets your business goals
Prepare your franchise for success
Why dream about owning a franchise when you can take concrete steps to make it happen today? With The Franchisee Handbook as your guide, you have the power in your hands to start your own franchise journey right now.
Opinions expressed by Entrepreneur contributors are their own.
Franchising can be a great way to get into business ownership. Look for a proven operating system, strong unit-level profitability, a great management team, differentiated and valuable product/service offerings and satisfied franchisees.
Most people who think about starting a franchise business end up looking at new unit development. That’s because most franchise opportunity marketing is geared toward selling new units. You may not even think about buying an existing unit or group of units. But if you’re considering starting a franchise business, then resale options should absolutely be on your radar. Remember that resales can also be combined with new unit development! So, it’s not a case of “either/or” (new OR resale) but could be “yes/and” (new AND resale) for the right buyers.
Assessing resale options is a great way to understand the value potential of any system you’re considering. What do units sell for when owners retire? Is the brand too young to have much of a resale history? Are resales going to existing owners who want to expand (because their experience as a franchisee is positive), or only to new operators (who don’t know the brand as well)? Are owners exiting after a long tenure with a history of good cash flow, or soon after joining because it didn’t work out? You can learn so much about a system by looking at resales.
Second, stepping in to run a business that’s already producing cash flow may be a better fit and less risky for many prospective franchisees. That existing cash flow can help you either acquire more units or build out new units much faster than if you had started from scratch. With a resale, the business is already operating. You’ll have a much better sense for the potential of the business, competition and areas for improvement.
You can tour the site or the territory. You can mystery shop and potentially meet the staff. You can assess existing marketing campaigns and spending and the impact on revenue. You can review multiple years of business results, including what happened during the pandemic. When starting a franchise from scratch, you can never be sure whether a concept will resonate or whether you’ll be able to find a good location. You also have to hire and train your entire team. It may take up to three years to fully ramp up a new franchise unit. Yes, walking into a going concern is a bit like drinking from a firehose, but if you assess the business carefully and you’re confident about the existing team in place, you can get off to a fast start.
Keep in mind that franchise salespeople earn commission on new unit sales, usually not resales. Keep their incentives in mind if they give you advice. Large franchise systems usually have strong resale programs and well-established processes. But it often takes smaller brands a while to handle transfers in a coordinated way. Don’t be put off if a younger system doesn’t have a smoothly operating resale program just yet.
There are business brokers in every community with franchise resale options. You can also approach owners directly and let them know you’re interested. Especially if you’re solely focused on resale opportunities and tell them so, they won’t see you as a threat and thus may be willing to share information about the franchise that can help you decide whether to keep looking within that system or consider other options.
Between 3-5% of franchise units are typically transferred every year. FRANdata forecasts that we ended 2022 with 792,000 franchise units in the U.S. If we assume 3-5% will transfer again this year, that’s 23,760 to 39,500 potential resales coming available. Not all of those will transfer, of course, and many will end up as multi-unit acquisitions, especially in legacy systems. But it still suggests there should be a robust number of units available from retirements as an option for you to consider.
Franchisees exit for many reasons. Retirement, a desire to monetize their years of hard work, burnout, relocations, illness, change in personal circumstances, etc. are all drivers. In healthy franchise systems, the transfer cadence is relatively predictable because it is tied to renewal schedules and lease expirations. There are only surprises if unforeseen personal circumstances prompt an exit. Unfortunately, for other brands, profitability issues drive churn. As you examine resale options, make sure system churn is due to normal retirements and not a red flag about system viability.
Finally, as you’re talking through resale options, listen closely to what the corporate team says about the exiting franchisee and the reasons for system turnover. Turnover is natural in a franchise system. Corporate team defensiveness about turnover is not. It’s incredibly bad form to blame turnover on franchisees, yet during mystery shops, I hear “it was just a bad fit” more than 95% of the time. Keep in mind that the corporate team has the final say on who is allowed into a franchise system. If it truly is a case of bad fit, it reflects badly on corporate’s approval process.
Speak to as many franchisees as possible to understand whether they are growing and investing in expansion units, including resales. Try to talk to other owners who have acquired resales in that system. Did the business meet their expectations? Have they gone on to expand further in new units or other resales? How did they start strong and maintain early momentum?
You may find the route to business ownership has been partially paved by an entrepreneur in your own community. They are ready to retire and looking for someone like you to take the reins of the business.
Opinions expressed by Entrepreneur contributors are their own.
Franchising your business is a proven route to rapid growth. But becoming a franchisor is not an automatic ticket to success, especially in this challenging economy. In January, for instance, three established franchisors filed for bankruptcy protection: Taco Del Mar Franchising Corp., Uno Restaurant Holdings Corp., and Daphne’s Greek Café.
Still, many business owners dream of seeing their brand become a household name, with a network of franchisees from coast to coast or around the globe. When the right concept is franchised effectively, it can be a great expansion strategy that doesn’t require as much up-front capital as growing through company-owned units.
If you’re considering franchising your business, know that the process of becoming a franchisor is usually long and involves considerable cost. Just because you qualify to sell franchises doesn’t mean you will find buyers. Data from the International Franchise Association shows that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their first unit by the end of 2009.
Becoming a successful new franchisor entails making many thoughtful decisions early on that will affect your business for years to come. There’s also a lot of legal paperwork to wade through to make sure your business complies with federal and state laws that regulate the franchise industry.
Here’s our guide to the important steps you’ll need to take along the road to becoming a new franchisor.
Step One: Step One: Evaluate if Your Business is Ready
The first question to ask is whether your business is suited to being franchised. Beyond having a track record of sales and profitability at the existing business, there’s several factors to weigh here, says Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group.
Consider your concept.
Most good franchise concepts, he says, offer something familiar, but with some unique twist to it. A good example is Florida-based Pizza Fusion which offers a familiar product–pizza–but with all-organic ingredients, delivered in hybrid-electric cars.
The concept has to appeal both to end consumers and to prospective franchisees. There should be an expectation that more units will create economies of scale and increase profits. Additionally, the business needs to be something you can systematize and replicate, not something that needs your personal touch to be successful.
“Ask youself, is the concept salable?” he says. “Can you clone it? Does it provide good returns?
Check your financials.
Most successful franchises take a business that’s already profitable and try to replicate that success in other locales. Cleveland-based franchise consultant Joel Libava says he likes to see companies with at least a couple of profitable units beyond the first one already in operation before a company tries franchising.
“Is it just one great restaurant and mama’s wonderful pizza sauce?” Libava asks. “Or did you keep growing?”
Gather market research.
Don’t rely on your gut feeling that your business would be a smash hit across the country. Gather market research to confirm there is widespread consumer demand beyond your home city for what your franchise business would offer, and room in the marketplace for a new competitor.
Prepare for change.
Becoming a franchisor means you’ll be engaged in entirely different activities than you were as a business owner. You’ll primarily be selling franchises and supporting franchisees now, instead of selling pizza or fixing toilets.
“Ask yourself if you’re comfortable having a role as a teacher and salesperson, selling and supporting franchisees,” Siebert says, “as opposed to going out there and doing it yourself.”
In addition, franchising your business will require that you relinquish some of the control you’ve had over how your concept is executed.
“Franchisees won’t do it exactly the way you would, even if they do it well,” says IFA president Matthew Shay. “If you are so married to your concept that you won’t let anyone else touch it, then franchising may not be right for you.”
Evaluate other alternatives.
Before you plunge into franchising, you may want to consider other options, Siebert says. Depending on your situation slower growth, finding debt financing or taking on partners are all alternatives that may prove better ways to move forward.
It also can cost $100,000 or more, so ask yourself if your company has the financial resources. Remember that while franchising allows you to grow fast, it also means giving up most of the franchise units’ future profits, Shay says.
Step Two: Learn the Legal Requirements
In order to legally sell franchises anywhere in the United States, your business must complete and successfully register a Franchise Disclosure Document with the Federal Trade Commission . In the FDD, you’ll be asked to provide a wide range of information about your business, including audited financial statements, an operating manual for franchisees, and descriptions of the management team’s business experience.
Beyond the federal FDD requirements, some states have their own rules for selling franchises within their borders. California and Illinois are generally regarded as having the most daunting registration process, says Libava. If you want to sell in one of these states, you’ll need to meet their requirements as well, at additional cost.
Franchisor Cindy Deuser, 51, co-founder of five-year-old franchisor Lillians Shoppes, says the rule binder her home state of Minnesota provided was two inches thick. It took the bargain-fashion-accessory company a full year and cost more than $100,000 to qualify in 45 of the 50 states, she reports.
“It took longer than we thought, and was very intense in terms of all the things you have to cover,” she says.
To advise and assist in this process, consultant Libava recommends hiring an experienced franchise consultant or franchise attorney. Often, a new company will be set up to act as the franchisor. Find an expert who can make sure you’re doing every required step correctly.
Step Three: Make Important Decisions About Your Model
As you prepare your legal paperwork, you’ll need to make many decisions about how you’ll operate as a franchisor. Key points include:
The franchise fee and royalty percentage
The term of your franchise agreement
The size territory you will award each franchisee
What geographic area you are willing to offer franchises within
The type and length of training program you will offer
Whether franchisees must buy products or equipment from your company
The business experience and net worth franchisees need
How you will market the franchises
Whether you want an owner-operator for each unit or area/master franchisees who will develop multiple units
New franchisors don’t realize how much each of these decisions can affect their future profitability, says Siebert.
“If you’re thinking either 5 percent or 6 percent royalty, for instance, the difference doesn’t sound big,” he notes. “But five years later, when you have 100 franchises sold, and they each make $700,000 a year, that’s a $7 million annual mistake. And you’ve signed a 10-year contract.”
Lillians’ Deuser says she and her sister/partner Sue Olmscheid, 45, ran many business-model scenarios with their franchise attorney before settling on their $25,000 franchise fee, 7-1/2 percent royalty and 10-year contract term. They seem to have hit a winning formula–Lillians has grown to 32 shops in its first two years as a franchisor with its unique concept, in which stores are only open a few days a month.
Be careful to note whether geographic variables such as weather or local laws may affect franchisees’ success. Territory size is important too, as too-large territories may have to be bought back later at a premium so they can be split up, notes IFA’s Shay.
In the case of San Francisco Bay-area solar-panel installation franchisor Solar Universe, the company is selling franchises in concentric circles moving outward from its headquarters, mostly in warm-weather states with high electricity costs and generous state green-energy rebates, says founder Joe Bono, 36. Solar Universe has sold 14 territories since qualifying as a franchisor in January 2008.
Inadequate training can leave your franchisees ill-equipped to implement your system successfully. Solar Universe spent nearly $1 million preparing to franchise, Bono says, including $150,000 to create a state-of-the-art training center for franchisees complete with indoor roofs where they can practice installations.
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Step Four: Create Needed Paperwork and Register as a Franchisor
Once you’ve made the important decisions that shape how your franchise will operate, you’re ready to complete your legal paperwork. When you submit it, be prepared for authorities to critique the document and possibly demand additional disclosures before they approve your application.
While the FTC essentially just files your FDD away, you’ll need to wait state approval. Bono reports Solar Universe waited several months to receive comments back from the state of California on its filing, and it took four months in all to get approved there.
Step Five: Make Key Hires
As you prepare to become a franchisor, you’ll usually need to add several staff members who will focus solely on helping franchisees. In the case of Solar Universe, the company sells its franchisees the solar panels they use, so founder Bono says he needed a full-time hire to staff the order desk. The company also hired a trainer and a full-time “franchise advocate” to answer franchisee questions and resolve any problems.
For its part, Lillians Shoppes hired a trainer, a creative director, a marketing assistant and a franchise-process manager who helped get franchisees using company software and systems, says CEO Deuser. Lillians now has a full-time staff of seven. The founding sisters still do all the buying for the growing chain, but Deuser says growth means they are already looking into hiring a second trainer.
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Step Six: Sell Franchises
Now that you’re in business as a franchisor, one of your most pressing activities will be to find franchisees and convince them to buy your concept. Lillians is unusual in that the company has sold all its franchises by word of mouth and doesn’t have a sales representative. To help stimulate interest, the company offers a $1,000 referral fee to anyone who sends the company a new franchisee.
At Solar Universe, Bono says they’ve hired two in-house salespeople to handle franchise marketing. The company has also entered into a partnership with the national franchise-consulting chain FranNet, whose consultants may present the company to their prospects. Other common sales techniques include attending franchise fairs or hiring independent franchise marketing firms to help locate investors.
Selling franchises is difficult because of the high risk involved for franchisees, notes Siebert. Your salespeople should know your business well and be able to tell a compelling story about why you’re a worth the investment of their time and money.
Siebert boils down the issue this way: “You’re saying, ‘I want you to give me all your money. Then, quit your job, give up your security and benefits, and go into a business you’ve never been in before. And follow my rules.’ You’ll need to establish a pretty high level of trust.”
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Step Seven: Support Franchisees
As a franchisor, you’ll have gone through a lot to reach this point. But here – at the point where you begin supporting your franchisee network – is where a chain ultimately succeeds or fails. Your training programs and other support efforts will create quality control, notes Siebert, making sure the brand provides a uniform experience no matter which unit customers visit. With the Internet, this has increasingly come to mean providing ongoing online learning modules for franchisees to use.
“If you’re a restaurant operator and employ 20 people in a unit,” he notes, “you have thousands of new employees going through the system every year. Without ongoing training, it’s pretty easy to institutionalize wrong behaviors.”
At the same time, you’ll need to start marketing the growing chain to drive sales to franchisees. Many new franchisors underestimate how much this marketing and support effort will cost, says consultant Libava. Marketing encompasses everything from radio or print ads to uniforms, logos, fliers, and logo art on company vans.
“Trust that you’re going to need a lot of money for marketing,” he says.
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