Investing in a franchise can be done at any age and for any type of career in transition. Whether you’re a millennial or a baby boomer, there’s ample opportunity available to become a franchise owner.
However, owning and operating a franchise as a baby boomer is certainly a different experience as opposed to getting started as a millennial business owner.
So, what should you know about opening a franchise depending on your age range? Here are a few things to consider:
- Which industry should you go into?
- How will you finance your franchise?
- Should you incorporate?
- Does your franchise need to register additional legal assets?
- Did you review the Franchise Disclosure Document (FDD)?
- Have you had your final interview with a franchisor?
Let’s take a look at a few key areas to keep in consideration before you begin.
Which franchise is best for me?
One of the best aspects of going into franchise ownership is the sheer variety of options available to you in every possible industry. You could open up a Pilates studio like Club Pilates, go nuts for doughnuts with your own Krispy Kreme, or spend time pet sitting with Fetch! Pet Care.
The best franchise for you may ultimately be a franchise in a field you are passionate about and/or where you have plenty of existing expertise.
How will you finance your franchise?
You may be able to seek additional financial support from a franchisor. Prior to meeting, however, you should have a general understanding of how much it will cost to buy a franchise and how you will finance the purchase.
Franchises come with additional expenses which may include, but are not limited to, the following:
- Franchise fee, which is an initial fee required to start a franchise
- Royalty and marketing fees, often collected by franchisors
- Additional fees that may vary for training, operating, inventory and equipment
How much should you save?
Upon reviewing the Franchise Disclosure Document (FDD), it is recommended that franchisors calculate up to three months’ worth of savings to cover their initial business expenses. Boomers may dip into personal savings or Rollovers for Business Startups (ROBS). The latter allows them to use retirement funds to buy a franchise without incurring tax penalties or having to make repayments.
On the other hand, millennials may be able to receive financial assistance from the franchisor, use personal savings, or take out loans with the Small Business Administration (SBA).
One more pro tip?
While there are franchises available to fit any budget, from a wide range of $10K to $499K, you may also consider an even lower-cost franchise. Think kiosks and vending machines. A low cost franchise allows you to go into business, but without the added expenses of opening a traditional storefront and securing its capital.
Should you incorporate?
One of the best ways you can protect your franchise is by incorporating as a legal structure. While many franchisees will pick a limited liability company (LLC) to incorporate as due to the entity’s flexibility, franchises may also incorporate as an S Corporation.
Why choose an S Corp?
Forming an S Corporation tells the federal government that the franchise would like to be taxed as a partnership. Electing to become an S Corp allows profits, losses and deductions to “pass-through” the entity level. This allows entrepreneurs to avoid double taxation and save money on payroll FICA taxes. If you are unsure of which entity to incorporate your franchise as, you may also consult a legal professional for additional advice.
Does your franchise need to register additional legal assets?
In addition to choosing an entity to incorporate as, your franchise may need to file and register for several assets.
Let’s break down how this works since more often than not, franchisees do not come up with unique marks for established franchises. The franchisor will grant a franchisee with a license that allows them to utilize the franchise’s trademark.
However, as stated in Item 13 of the FDD, the franchisor is still the owner of the mark and will protect it. That same mark must be registered with the United States Patent and Trademark Office (USPTO). If, for whatever reason, it is not and the franchisee has an unregistered mark from their franchisor, they must contact a legal professional to discuss next steps in protecting the trademark.
By registering for a DBA, or “doing business as name,” a franchise that has incorporated as an LLC may do business under another name that is different from your existing company name.
Want to hire a staff for your franchise? You’ll need to register for an employer identification number (EIN). An EIN allows the IRS to uniquely identify employer tax accounts, open a business bank account and establish a business credit profile.
Did you review the Franchise Disclosure Document (FDD)?
Prior to meeting with a franchisor to sign the paperwork that allows you to invest in a franchise, potential franchisees must thoroughly read and review the Franchise Disclosure Document (FDD).
The FDD is provided to potential franchisees after their initial meeting with a franchisor. By now, the franchisor will have reviewed your application and will be seriously considering you for franchise ownership. This document contains 23 different items to review, so it’s advised that you read through it and review it with a legal professional in the event that you have additional questions.
Have you had your final interview with a franchisor?
You’re almost ready to become a franchise owner!
Now, it’s time for your final meeting with the franchisor before signing the necessary paperwork.
If you have any burning questions — such as what operating the franchise is like on a daily basis or if there’s any additional training offered, ask now. It may even be possible for you to shadow the franchisor at their storefront to get a taste of what life in franchise ownership has in store for you.
After answering these important questions, you should feel much more prepared for franchise ownership, regardless of whether you’re a millennial, baby boomer or somewhere in between! Let your passion for entrepreneurship and your prior business experience guide you, and you’ll be a successful franchisee in no time.