The Franchisee Playbook: 6 Must-Do’s Before Starting a Franchise
So, you want to open a franchise. Congratulations! The next step is figuring out how to start a franchise! There are a variety of franchising options available to savvy entrepreneurs in today’s market. With that being said, figuring out what you need to start a franchise and what specific franchise will work best for you is critical to your future success. It seems like a new franchise pops up every other week, but doing your research on each specific type and committing to something you’re interested in undertaking can make all the difference in your experience with business ownership. Before you sign on the dotted line, here are six things to think about when it comes to opening a franchise.
The first thing you need to know in and out before opening a franchise is the investment you’ll need. When asking yourself, “what do I need to start a franchise?” having the required capital is at the top of the list. You should know exactly how much you’ll need for the license, opening inventory, staff, real estate, and everything else that goes into operating a franchise. Most franchises require that you have a certain amount of net worth and liquid assets before they’ll even grant you a license. Getting your numbers in order and ready to present is the first step in your journey. But don’t fret, many franchises offer assistance with finances and lending so that you can make your dream of business ownership a reality.
2. Quality of Life
When you’re figuring out how to start a franchise, you want to assess what your life will look like on a daily basis as a business owner. Do you plan to be heavily involved in the business or would you rather be hands off? There are three types of franchises: owner-operator, semi-absentee, and absentee. If you don’t want to spend all your time in the store, then the owner-operator option isn’t for you. Owner-operators are heavily involved in the day-to-day operation of the franchise while absentee owners don’t have to be. Find a franchise model that works for what you want your quality of life to reflect. If you’re passionate about the franchise and want to be in the store each day, then go for it! But, if you’re more interested in the revenue and less in the daily operation, look for a franchise that fits those needs. There’s truly something for everyone.
3. Franchise Performance
Before you sign the paperwork to open your own franchise, do some research on how it’s performing. Sometimes, the franchisor operates their own stores in addition to franchising locations out to other owners. If this is the case, research how those franchisor-run stores are doing. Do they tend to be more or less successful than their franchised counterparts? How is the franchise doing overall? As part of the franchising process, you’ll receive a Financial Disclosure Document. This provides information on the success and performance of the franchise and will allow you to predict the future performance of the franchise. While it isn’t required for franchises to disclose performance info, the FDD should have a Item 19 – if it doesn’t, don’t sign.
Research your desired franchise’s growth. While you might be caught up in how to start a franchise, figuring out how the one you’re looking at is expanding is key to your future success. If the franchise you want to sign with is expanding, then that’s a great sign. That means that existing owners are focused on expanding and that the local market is healthy enough to sustain it. Find out how many franchisees own multiple locations and what the projections are for growth. In addition, carefully review Item 20 in the FDD. This tells you how many locations have opened, closed, chose not to renew, or were terminated in the past 36 months across the brand. If there are lots closing, it could be a bad sign.
5. Franchise Specifications and Transfer
This might seem like a simple part of how to start a franchise, but carefully reviewing the specifications of your desired franchise is critical. Every franchise has different operating specifications and understanding them and being OK with them before you sign up is important. Sometimes, people get into franchising without realizing what they’re signing up for and then want to get out. Looking at your franchisor’s transfer rate might give you insight into the brand. Now, not all transfers are negative. Sometimes life happens and franchisees need to get out or successful owners decide to cash-in at the right time. A low transfer rate could suggest those who want to sell are having a hard time finding qualified buyers while a high transfer rate may indicate unhappy owners. Figure out what a healthy percentage looks like and bank on that. By the way, the transfer rate can also be found in Item 20 of the FDD.
6. Ability to Succeed
The last thing on your mind when you’re thinking “what do I need to start a franchise” is probably the end game. But, before you get into being a franchisee, you should look at the big picture. One of the best things about owning a franchise is that you’re not alone. When you start a business on your own, you’re left to figure it all out. With a franchise, you have the backing of a proven business and everything that comes along with it like marketing, training, and operational processes. Research how much support your chosen franchise offers its franchisees. Do they help you open your doors then bail? Or do they provide ongoing support to help you succeed? Determine the level of support you can expect from your franchisor before committing.
Owning a franchise can be a fulfilling and lucrative business move. But before you sign up, do your research! The more information you have, the better your decision will be and the more successful your franchise will be! If you’re interested in finding out more about becoming a Supercuts franchise owner, contact us today!