- Buy a Franchise: The 7 Key Steps to Franchise Ownership - December 24, 2009
If you’re reading this, you probably want to be your own boss and are exploring options to buy a franchise. Good choice. But there are many points to consider. Many people think that to own a franchise, you just search for a list of franchises, find out how much they cost, and decide which one to buy.
In reality, a franchise is “awarded” by the company (the Franchisor) to the buyer (the Franchisee). There is an application to submit, due diligence on both sides, criteria to fulfill, and more. You are creating a business relationship – often for 10 years or more – and this is not to be taken lightly.
Typically, in total there are seven steps to franchise ownership, as follows:
- Find a Franchise Concept that Fits
- Submit Request for Consideration/Application
- The Franchise Disclosure Document (FDD)
- Training and Support Overview
- Franchise Disclosure Review
- Franchise Due Diligence
- Celebration or Discovery Day
Step 1: Find a Franchise Concept that Fits
First, you need to see a list of franchises to explore available concepts and opportunities. There are more than 1,100 franchise businesses currently registered with the International Franchise Association. Many healthy, growing franchises are listed at FranchisesForSale.com.
How will you know which one is right for you? Besides cost and location, you also need to know a few things about yourself, what you like to do and what financial and human resources you have available. See the article, “Narrowing Your List of Franchises” for additional information.
Step 2: Submit Request for Consideration/Application
To get started, choose two to three industry categories, such as casual dining franchise, automotive franchise, cleaning franchise, healthcare or senior care franchise. Within each category, choose one to three concepts or companies from which to request information.
If you still don’t see what you like, go back to the categories again and choose some more. This way, you won’t be inundated all at once with information, 90% of which may not appeal to you. Upon receipt of your request, the companies will match you with a representative, and you should receive information back from them in a week by e-mail and/or telephone.
Step 3: The Franchise Disclosure Document (aka: the legal stuff)
Now it gets fun. Now you get to explore in detail the industry, the company, its business model, the role of the Franchisor and the role of the Franchisee. The Franchisor will provide all of this in their Franchise Disclosure Document (FDD).
This document, required by the Federal Trade Commission (FTC), helps you understand the franchise model, fees, and commitments in the Franchise Agreement. (The Franchise Agreement is in Step 7.) The FDD is the legal document that defines the relationship between the Franchisee and the Franchisor.
The FDD can be over 200 pages long. Don’t be afraid, but do be sure to read it. Start with the sections that interest you. That may be the fees, restrictions, training, advertising, hours of operation, etc. You’ll want to know what your obligation will be, and what the Franchisor will and will not provide.
Step 4: Training and Support Overview
One of the major benefits of being a Franchisee business owner is that someone else has done the ground work for you. They have created the concept, researched the market, developed the product and service offerings, and are willing to share their trade secrets, marketing and training programs with you. For a fee.
The Franchisor should provide you with a detailed outline of the kind of support, both operational and marketing, and training you can expect. They may provide onsite training at your location, or you may have to travel to them for training. Some have detailed advertising and marketing support, some provide only online and phone support. Know what you are comfortable with and how much support you think you will need.
Step 5: Franchise Disclosure Review
We are about to get down to business. You will have an in-depth conversation or interview with your Franchisor Representative (from Step 2). Together you will review the FDD and discuss available territory. This is your opportunity to go through the FDD section by section and ask any questions that may have come up in the process of exploring the franchise business opportunity.
Step 6: Franchise Due Diligence
At this point, you should have a detailed understanding of the Franchisor, their industry, marketing, operations and support for Franchisees. But don’t make any hasty decisions. You should speak to someone at the corporate office of each franchise you are considering. In addition, you may want to contact several Franchisees from each.
Keep in mind that while you are evaluating how a particular franchise concept fits your needs, the Franchisor is comparing you to their “ideal candidate” profile. Preparing helps. Use these Franchise Interview Questions to help you get an edge on being selected as a candidate for the franchise award.
Step 7: Celebration or Discovery Day
Congratulations! If all goes well, this is the final step in the mutual evaluation process before being awarded the franchise business. This is the day you sign the Franchise Agreement and meet department heads and key executives who will work closely with you as a Franchisee. Now you’re in business – you own a franchise!