How to Start a Franchise
Starting a franchise takes effort, time, and capital. Should you go into business for yourself or should you start a franchise?
Franchising allows businesses to expand without having to invest in costly equipment, inventory, and buildings. If you want to start a franchise, then you need a good plan and a solid idea. The key to success is finding the right niche.
This guide explains how to become a franchisor. If you are considering starting a franchise, you need to create a detailed business plan so you don’t get lost along the way. Also, consider hiring a professional who knows the ins and outs of running a successful franchise.
How to Start a Franchise
1. Find an Idea
Your idea doesn’t have to be novel, but it needs to provide something new that people will pay money to buy. For example, if your restaurant specializes in gourmet burgers and fries, you can capitalize on this niche by offering hamburgers made from top-quality ground beef instead of the usual cheap cuts. People love unique food, so they’ll be willing to pay more for a burger made with high-end meat.
2. Create a Business Plan
Creating a thorough business plan helps you develop realistic expectations about what you’re getting into. It’s also useful as a marketing tool because customers can see whether their interests align with yours and whether you’ve thought through all aspects of the venture. A business plan is a blueprint for success. It includes information such as:
- Your goals for the business
- How much money you have available
- Which costs you foresee
- What problems the business might encounter
- How you intend to resolve those problems
- An analysis of your competition
- What potential risks there may be
- How you intend to minimize those risks
- A summary of all the above points
- Any other pertinent information
The purpose of creating a business plan isn’t simply to show investors why you’re worthy of investment; although that may be part of your motivation, it’s typically just one goal among many. Instead, you use a business plan mainly to prepare yourself mentally so you can successfully pursue your dream.
3. Identify Your Niche
If you want to open a fast-food restaurant specializing in sandwiches, your niche would be sandwiches, not burgers. To succeed at sandwich making, you must know, understand and master everything involved, from choosing quality ingredients to cooking the best possible meal. You don’t necessarily need to sell only sandwiches, though. There are plenty of other items that you could offer including coffee drinks, soft drinks, desserts, appetizers, and snacks. However, it’s important to choose a small number of items that target different market segments. In other words, you should specialize in something.
4. Choose Whether to Franchise
The choice between opening a franchise or going it alone has two advantages and three disadvantages.
- You won’t need to build a physical location (unless you intend to move to another town)
- Most of the work is done before you begin operating the business
- Riskier than owning your store
- Faster than building your store
- Fewer possibilities for growth
5. Do Market Research
Knowing whom you’re selling to is critical to establishing a profitable business model. To find out if there is a demand for your product, talk to consumers and salespeople within your proposed market area. Ask them what type of stores they visit and what types of products appeal to them most.
Pay attention to trends such as “hip” neighborhoods where young professionals live, trendy areas, hot-weather destinations, and locations near college campuses. These places usually attract wealthy millennials, who spend freely on entertainment.
6. Decide How Much Capital to Raise and Where to Get Funds
Some businesses start with little capital and others require millions. The right amount depends on your budget and your experience level. If you’re an entrepreneur without previous entrepreneurial experience, it’s unlikely you’ll get funding for a million-dollar startup, regardless of how great your concept is.
On the other hand, no matter how big your concept seems, you probably cannot finance it unless you have lots of money you’d like to invest. Also, you should take into account that raising capital involves fees. So, when assessing your chances of succeeding, consider both your current cash flow and whether you will earn enough income to repay your loan.
7. Write Down Goals and Objectives
Before starting any project, write down your goals and objectives. This helps make sure you clearly outline all aspects of your business and avoid wasting time implementing useless features. It also keeps you focused during development, reduces risks for potential investors, and makes planning easier.
Before writing your goals and objectives, ask yourself these questions: What do I expect the final product or service to look like? What does my ideal customer need, want, or expect from me? Why do I think people will buy this particular item? Once you’ve identified your needs, list specific goals for each of those needs.