Breaking into the Franchising Game: 5 Ways to Do it

Running your own small business or becoming a franchisee allows for multiple paths to be taken in starting up. If you start thinking of franchising as just “becoming an owner of a Chipotle restaurant”, you’re out of the know. Besides limiting your opportunities, franchising doesn’t mean building four walls and buying boxes of detergent. Learn to be flexible and take advantage of these opportunities. Here are five ways of immersing yourself into any franchise venture:

From-the-Ground-Up – this is most people’s impression of a franchise. Basically, it means building a new store out of scratch and becoming the prime operator. Although the franchising business stills operates mainly in this way, there are other offerings out there. A plus side of the “From-the-Ground-Up” method of operating a franchise is that the full new term of any franchise agreement you look at lets you recover your investment in the max timeframe available. In addition, a sparkling new store means credibility is solely yours. You don’t have to deal with existing employees or any inventory problem. You hire your own crew and your position stands as top boss.

Of course, going through this route can present problems. Your new location might be a bad one, and any investment towards it might be at risk. Secondly, your new team might not be properly trained so training programs have to improve. Starting up this kind of franchise will eat away at funds until a profit stream starts covering your employees and other expenses. Always carry plenty of sufficient funds when building a franchise.

Existing Franchise – a franchise already put into place offer plenty of bells and whistles. To begin, the numbers are at your disposal. Sales, profit streams, tax return information, and expenses are detailed in the records for you to evaluate the franchise’s performance. In addition, you can get more information by talking to the owner and employees. By analyzing in this way, you’ll be able to spend your investment wisely. Cash in by taking over a fraught franchise and inject it with new ideas to make money. Remember, buying an exiting franchise means you must abide by the transfer rules of the current franchise agreement, which can range from flexible to restraining. This could mean a transfer fee 5%-15% of the purchase price, so make sure this is included in all price negotiations. If you’re buying a struggling franchise, discuss reducing the transfer fee with the owner. Some companies might even drop the transfer free altogether if you prove enthusiastic enough to resume.

A risk with purchasing an existing franchise is that you might encounter some hidden problems. Supply vendors might be scoffing, employees could be immoral – it all comes with a risk. In your opening budget, be sure to address these problems and plan financially for it.