Did you know that opening a franchise is one of the most successful ways to start a new business? We’ll show you how to start a franchise and find the best opportunities.

We talked to Dr. Tom DuFore, a franchise development specialist who helped Jamba Juice and Massage Envy start their franchising. We analyzed all sides of the franchise industry to help you learn more about starting a franchise.

We’ll discuss the benefits of a franchise network, franchise royalties, and what prospective franchisees need to know. We’ll introduce you to common franchises people consider, the pros and cons of starting a franchise, and explain the process you’ll go through when starting a franchise.

Lastly, we’ll answer frequently asked questions new franchisees often have. You can keep reading or jump to the section that interests you to learn more about starting a franchise:

What is a franchise business?

A franchise is a partnership between two business owners: the franchisor and the franchisee.

The franchisor is the company that founded the parent company. They own the intellectual property and provide franchisees with the rights to use their branding, systems, processes, and products to serve customers in a specific area.

In return, the franchisee pays a franchise fee, ongoing royalties, and technology fees. This allows them to operate a business location, hire employees, and serve customers with the franchisor’s business model.

The arrangement benefits both the franchisor and the franchisee. The franchisor builds their brand faster, while franchisees reach profitability faster than most new businesses.

Tom defines franchises as having three main characteristics:

• The business name is used by multiple business owners.
• You use someone else’s systems.
• You pay a fee for the rights to use the business name and systems.

Case Study: Big Sky Franchise Team

Dr. Tom Dufore was studying business management in college and knew he wanted to go into management consulting. He told us:

He started Big Sky Franchise Team to help people with franchising a small business. Check out our interview with Tom below:

Common Types of Franchises

There are many different types of franchise businesses, but franchises are more common in certain industries than others. Next, we’ll talk about some of the most common franchise opportunities.

Service Businesses

We focus on finding the best service business franchises on the market to help small business owners succeed. Some of our personal favorites are service-based businesses. Tom told us:

He also stated that some of the most profitable franchises are high-margin businesses that tend to be unattractive to a new business owner. He mentioned:

Many service business franchises can be run out of a home office to save on the upfront costs, but you’ll have to check with each franchise to make sure.

Fast Food, Restaurants, and Food Trucks

Nearly 25% of the top franchises are restaurants and fast food. Companies such as Taco Bell, Popeyes, and McDonald’s are all famous found brands that a business owner can invest in franchise opportunities.

Check out our blog about food truck franchises to find more business franchises that serve food.

Business Services

Thirty of the Top 500 franchises ranked by Entrepreneur are business services like graphic design, staffing agencies, and consulting services. These franchises are great opportunities for a business owner to provide services to other businesses.

Health and Fitness

There are 41 health and wellness franchises in the top 500. Some of these will require hiring doctors or nurses, but many of them are gyms like Anytime Fitness.

Tom says this type of franchise tends to be high profit, so keep this sector in mind as you consider how to open a franchise.

Retail

Twenty retail stores are considered top franchise opportunities, including Ace Hardware and 7-Eleven.

There’s a franchise business for almost any type of retail, but these franchises will normally require a physical shop. That means the startup costs are often between $100K and $10M.

Franchise Pros and Cons

Let’s look at the pros and cons of starting a franchise in greater detail.

Why should I start a franchise?

Some of the reasons you might want to start a franchise include:

• Proven business plan: Franchises have a proven track record that makes it easier for you to succeed.
• Easier financing: Many lenders are more willing to lend to a franchise program than a new business with no track record.
• Less risk: Franchises fail less often than new businesses because franchisees have a support system to help them solve problems.
• Faster growth: Franchisors have marketing materials and resources to help you grow faster than you would on your own.

Tom suggests that a small business owner should look into a franchising business in the following circumstances:

Why shouldn’t I start a franchise?

Some reasons you might not want to start a franchise include:

• Higher startup costs: You should expect to spend a minimum of $50K to start any franchise. Some franchises cost millions to open and operate for the first year.
• More structure: People who want to make their own rules might not like all the terms in a franchise agreement. If you don’t follow them, you can lose the franchise.
• Franchise fees: Franchise fees eat into your profits. Given that you’ll spend around $45K for the average initial franchise fee and at least 10% in ongoing fees, someone who is skilled in systems and marketing could easily create better results by investing in marketing.
• Risk from partners: Risk like recalls on the franchisor’s products or bad behavior by other franchisees can damage your company’s reputation.

How to Start a Franchise in 13 Steps

If you want to start a franchise, you will normally follow the process below:

1. Research franchise business ideas.
2. Request information.
3. Review the franchise disclosure document.
4. Attend discovery day.
5. Get your LLC and business licenses.
6. Sign your franchise agreement.
7. Pay the initial franchise fee.
8. Create a business plan.
9. Obtain funding.
10. Attend franchise training.
11. Find a physical location.
12. Get equipment, supplies, and inventory.
13. Open your franchise.

Step #1. Research Franchise Business Ideas

First, you’ll want to consider what type of franchise business you want to run. The initial franchise fee, startup costs, revenue, and profitability are different in each industry.

Then you’ll research the different franchise opportunities in each segment you’re interested in. Pay close attention to ongoing royalties and the franchise’s brand reputation.

We review franchise opportunities in some of our blogs. Check out the ones below to learn more about franchise business opportunities:

• Best Overall Franchises
• Best Low Cost Franchises
• Most Profitable Franchises

Step #2. Request Information

Once you’ve narrowed your choices down to five or ten options, it’s time to request more information. You can request franchise information through a franchise website or reach out to one of our franchise brokers to help you decide. It doesn’t cost you a dime to work with one of our brokers.

Reach out to Jon Ostenson to request information about any franchise companies outside of the food industry. Reach out to Jenny Sutter or Stephen Melchiore if you’re interested in a franchise opportunity involving food.

Step #3. Review the Franchise Disclosure Document

You’ll be provided with a franchise disclosure document that includes 23 sections to help you learn more about the franchise opportunity.

• The franchisor and any parents, predecessors, and affiliates
• Business experience
• Litigation
• Bankruptcy
• Initial fees
• Other fees
• Estimated initial investment
• Restrictions on sources of products and services
• Franchisee’s obligations
• Financing
• Franchisor’s assistance, advertising, computer systems, and training:
• Territory
• Trademarks
• Patents, copyrights, and proprietary information
• Obligation to participate in the actual operation of the franchise business:
• Restrictions on what the franchisee may sell
• Renewal, termination, transfer, and dispute resolution
• Public figures
• Financial performance representations
• Outlets and franchisee information
• Financial statements
• Contracts
• Receipts

Review them all carefully, preferably with a franchise consultant or licensed attorney. Tom explained what to look for while reviewing these documents:

Step #4. Attend Discovery Day

Discovery day is a chance for you to meet the franchise owners and establish whether the franchise opportunity makes sense for you from a cultural and business model standpoint.

You’ll normally tour a facility, have an interview, and go over the franchise disclosure document in extensive detail. While you may be able to do these activities remotely, it’s normally better to do them in person. That means you’ll need to include travel, hotel, and food in your costs to start a franchise.

Step #5. Get Your LLC and Business Licenses

Once you know you’ll be starting a franchise with an organization, you should start your limited liability company (LLC). You’ll also need to get your business licenses, employer identification number (EIN), and business bank account so that you can start separating all the business finances from your personal ones.

This is important to do before you pay the franchise fee so that you can easily include these items as business expenses. You’ll need to go to the secretary of state office for your LLC.

You get business licenses from different places depending on the industry and location of your business. EINs are available through the Internal Revenue Service.

Meanwhile, I would recommend asking your franchisor about where they suggest getting a business bank account. Some franchisors have deals with banks that can help you get a loan as a business owner.

Step #6. Sign Your Franchise Agreement

Before you can become a franchisee, you and the franchise owners will need to sign your franchise agreement. This is a legally binding contract that clearly defines the terms and conditions under which you will operate the franchise. You’ll also need to pay the franchise fee at this stage.

Step #7. Pay the Franchise Fee

The franchise fee is an initial payment for the right to use the company’s name, brand image, processes, and products or services. It’s due at the time you sign the franchise agreement. There may be additional fees that you need to pay at this time as well.

Step #8. Create a Business Plan

You’ll want to write a business plan to help you keep on track with everything you need to do. You’ll also need it to apply for financing unless you are 100% self-financing, which is unusual.

The main difference between a business plan for franchises and other small businesses is that most of it is prepared for you by the franchisor. In some companies, you will need to do this before buying the franchise to show your commitment and understanding of their policies.

Learn how to write a business plan.

Step #9. Obtain Funding

You’ll need to think about how you’re going to fund a franchise. Many franchisors take out loans against real estate or equipment. The startup costs of some franchises like McDonald’s can reach up to $3 million.

Next, you’ll actually learn how to start a franchise using your franchisor’s business model.

Step #10. Attend Franchisee Training

Franchisee training can last anywhere from a single day to a month depending on how complex the operations are. Learning how to start a franchise like Dunkin Donuts is much more complex than learning how to clean a house. Tom explained:

If the franchisor doesn’t focus heavily on helping you succeed, then that franchise may not be the best option.

You’ll need to attend training, take notes, and practice all the processes to ensure you’re ready to operate the business. You may also want to bring any managers or employees depending on your business model.

There may be ancillary costs associated with this step of the franchise business model, including airfare, hotels, and food. Assume that you’ll need a minimum of $500 per person to cover a single day’s expenses.

Step #11. Find a Physical Location

Many franchises will require you to get a shop in your territory. The best franchises will help you with selecting a location, completing inspections, and remodeling.

You’ll need to work with a variety of government agencies and contractors to get your space ready for business.

Step #12. Get Equipment, Supplies, and Inventory

You’ll need to get your equipment, supplies, and inventory before you open franchise locations. Some franchises in sectors like professional services require little or no supplies and inventory, while restaurants have a substantial investment before you can open your franchise.

Step #13. Open Your Franchise

Once you’ve prepared everything to start a successful franchise, it’s time to market your franchise and open your doors.

Frequently Asked Questions

How much does it cost to start a franchise?

You should expect to spend between $25,000 and several million to start a franchise. The average franchise costs $45,000 for the franchise fee before any additional expenses.

How to start a Chick-fil-A franchise

You can talk to one of our franchise brokers or reach out to Chick-fil-A to request information. You’ll need to:

1. Apply to become a franchisee.
2. Go through the interview process.
3. Attend multi-week training.
4. Hire a team.
5. Purchase inventory.
6. Buy insurance.
7. Open the store.

Note this is completely different from the franchise process for many other types of business operations.

How much does it cost to start a Chick-fil-A franchise?

Chick-fil-A states that opening a franchise costs a minimum investment of $10,000. This appears to be the minimum for the initial franchise fee, but the ongoing costs make up for the reduced initial fee.

How to start a McDonald’s franchise

Starting a franchise with McDonald’s is an intensive process:

1. Fill out the interest form.
2. Go through an extensive 6- to 12-month training program. It requires at least 20 hours a week.
3. Wait for a franchise to become available. They can cancel for any reason.
4. Take over the franchise.

How much does it cost to start a McDonald’s franchise?

You’ll need at least $500K of non-borrowed funds if you want to buy a McDonald’s franchise. A McDonald’s is only for franchisees with extensive experience and assets.

How to start a Starbucks franchise

You have to own a location that Starbucks wants to be able to get a license to open a Starbucks. Plus, you have to be able to afford building out the space and purchasing equipment and inventory.

This isn’t the same as starting a franchise. It’s a licensing agreement and a small part of Starbucks’s revenue despite applying to 49% of stores.

How much does it cost to start a Starbucks franchise?

You’ll need $315K plus $700K in liquid assets to be able to buy a Starbucks license.

How to start a Wingstop franchise

The process to start a Wingstop franchise operation is:

1. Request to become a franchisee.
2. Talk to the franchise sales team.
3. Provide financial documentation.
4. Review their franchise disclosure document.
5. Attend discovery day.
6. Sign and execute a development agreement.

How much to start a Wingstop franchise?

The cost to open a Wingstop franchise location is between $259.4K and $912.1K. This includes the initial fees, startup costs, and the first three months of business expenses. Those figures don’t include real estate or lease costs, which will be additional charges.

How to start a Little Caesars franchise

To open a franchise with Little Caesars, you’ll need to:

1. Apply to become a franchise owner.
2. Attend discovery day.
3. Attend eight weeks of in-store training.
4. Begin store construction.
5. Open your Little Caesars.

How much to start a Little Caesars franchise?

Like most restaurants, Little Caesars has high upfront costs of $393K to $1.72M. They also require you to have a $400K net worth and $200K in liquid assets.

How to start a Subway franchise

To start a Subway franchise, you’ll need a $150K net worth and $100K liquid capital per location. You’ll need to:

1. Answer a short questionnaire.
2. Review the franchise disclosure document.
3. Talk with the franchising team.
4. Apply for a franchise location.
5. Build your restaurant.
6. Complete three weeks of training.
7. Open your Subway.

How much to start a Subway franchise?

The estimated cost to open a Subway franchise is $229.1K to $522.3K, which includes a $15K initial franchise fee. You’ll also need to pay an ongoing fee of 12.5% of gross sales for the royalty and marketing costs.

How to start a Chipotle franchise

According to franchise attorneys Waldrop & Colvin, all Chipotles are corporate owned. You can’t currently buy one, but the CEO mentioned the possibility in 2018. Some alternatives to a Chipotle that do offer franchises are:

• Del Taco
• Moe’s Southwest Grill
• Qdoba
• Taco Bell

How much does it cost to start a Chipotle franchise?

If you’re searching “how much to start a Chipotle franchise,” you won’t find an answer until Chipotle changes their policy on franchising. If Chipotle starts franchising in the future, we’ll be happy to answer this question. Until then, we recommend reaching out to one of our preferred franchise brokers to find another option.

How do I franchise my business?

You’ll need to follow the steps below to start franchising your business.

1. Determine if franchising is right for you.
2. Create your franchise business plan.
3. Establish your franchise company.
4. Create a franchise disclosure document.
5. Create a franchise agreement.
6. Prepare your operations manual.
7. Register your trademarks.
8. Register and file your franchise disclosure document.
9. Set up your franchise operations.
10. Start marketing to potential franchisees.
11. Improve your franchising.

Check out our blog about how to get into franchising or request franchise development help.

Closing

In this blog, we explained what a franchise is and introduced a few of the most common franchises. We also discussed the pros and cons of franchises, how to own a franchise, and commonly asked questions about setting up a franchise.

Ultimately, most franchises have benefits over a new small business as long as you understand that you don’t have creative control over how your new franchise operates.

In return for abiding by all the franchisor’s rules and policies, you’ll benefit from explosive growth during the initial stages. You’ll also have the ability to buy multiple locations, but you’ll pay ongoing royalties to own the business.

What kind of franchises are you looking for as a new business venture?