A Brief Glance at the Franchising Industry
Buying a franchise affords you the opportunity to sell prominent goods and services, and to get training and support that would help you become successful.
Therefore, if you're comfortable with relinquishing some executive control and creative freedom in exchange for a proven business model that works on all levels - from branding to marketing to pricing - buying a franchise might be perfect for you.
When franchising is implemented correctly, it's a business vehicle unmatched when it comes to power, speed, and capacity for growth and empowerment.
With 26,000 new franchises opening in the US in 2021, it's evident that there are so many choices available, and you’ll be able to choose one that suits your goals, budget, and experience. Hence, choosing the right franchise for you can be an exciting journey, but it can pose some challenges.
This guide is designed to provide you with all you need to know to become a successful franchisee, and how to franchise your small business.
What Makes a Successful Franchise System?
- Considerable track record of success: a strong franchise has at least five years of experience in helping a good number of people achieve lifestyle success with their franchise.
- Effective leadership: the business attitude of the franchisor/ the CEO of a franchise system is a strong determiner of how successful or unsuccessful a franchise will be.
- Robust business system: A five-year track record means the franchise has scaled through the initial growing stage and now has a strong business system that future franchisees can maximize and benefit from.
- Creditworthiness and strong financial base: a sound franchise system should have its financial ratios equal to or above the industry's benchmark.
- Selection process: selecting a new franchise with strong skills and a culture that aligns with the franchisor's values is vital to the long-term success of any franchise system.
- Strong brand recognition: in today's market structure, having a strong brand influences the demand from consumers. Potential franchisees should put this into consideration when choosing a franchise.
- Demographics and location: franchisors should assist in securing leases for the best locations that will attract the target demographics.
- Strong purchasing power: a sound franchise system should be able to secure better pricing on supplies and essential products than independent business owners would manage.
- Satisfied franchisees: this is a crucial determiner of a successful franchise system, as happy franchisees epitomize a functional system.
- Active Member of the International Franchise Association.
Choosing a Franchise that Suits You
A popular franchise might not necessarily be the best fit for you, and that's why it's essential for you to take your franchise research seriously. Here are some elements you might want to look into:
In order to prevent a bad business decision, you should analyze the market opportunities of the franchise you plan on getting into. Gaining access to free and paid market data will help you understand the demand and competition of a franchise system.
For example, if you're interested in the foodservice industry, market research shows that the market size is expected to grow by $157.3bn at a CAGR of 4.11% from 2021 to 2025. This indicates that buying into franchises like McDonald's and Wendy's might be a good investment.
Guide your research process by finding answers to questions like:
- How much demand is there for the franchisor's goods and services in your community?
- Is the demand seasonal (tied around holidays) or evergreen?
- Do the products or services generate repeat business?
- How many franchises or companies offer similar services and products at a comparable price?
- Does the franchise offer products easily found in catalogs or are available in online stores?
The franchises' potential and brand reputation
Since buying a franchise gives you the right to identify with the franchisor's brand, it becomes necessary to opt for an established franchise with a good reputation and well-known name.
For example, the Chick-Fil-A franchise has a brand reputation for customer satisfaction. According to QSR magazine, this has played a role in their 50 consecutive years of sales growth.
Though a growing franchise might signify a franchise with great potential, it's imperative to scrutinize the franchisor's financial resources and assets. This will help gauge if they are growing faster than their financial capabilities and if they'd be to support and deliver on their promises to their franchisees.
The type of industry you want to consider
There are so many industries you can operate a franchise in, not just the foodservice industry. This business vehicle can be employed with practically every product and service division.
Hence, rather than jumping on a franchise based on popularity alone, you could take your time to consider which franchise type best suits you.
Cross referencing the franchise fee with your budget
The cost of acquiring a franchise varies depending on the industry and the business model. Some franchises' upfront fees could be as high as $1 million, while some could be lower than $10,000.
For example, fast food restaurants like Burger King and Pizza Hut could cost between $250,000 - $1,000,000 while auto repair franchise like Tuffy Tire & Auto Service and RNR Tire Express could cost around $200,000 - $400 000.
Therefore, it would be wise to calculate your initial investment and cross-reference it with your expected return, equity goals, income, and lifestyle.
Personal skills and experience
Most franchisors would prefer franchisees with specific industry knowledge and experience. But beyond that, franchisors want franchisees with a basic understanding of customer service, marketing and sales.
Consider your skills and experience in choosing your franchise industry, as these will make you more desirable to your potential franchisors.
Training and support
Most franchisors are responsible for training franchisees in certain aspects of their business model regarding their logo, products, messaging, and guidelines.
A franchise in the fast-food industry would train their employees on things like food safety regulations, how to use their POS systems, and manage inventory.
For example, Dunkin Donuts offers a thorough 6 weeks of training, which include:
- Week 1: Dunkin brands
- Week 2-3: Restaurant management systems
- Week 4-6: Manufacturing and production.
Conversations with current franchisees
Like most organizations, the best way to get insider information and learn about the inner workings of a franchise is by having direct conversations with people already in the system. This way, you could easily amass information on the franchisor's support system, licensing fees, and more.
Understanding the franchise agreement
A franchise agreement is a document that is legally binding, under which the franchisor grants the franchisee the right to offer services and products associated with the franchisor's trademark. It outlines the obligations, expectations, restrictions, and permissions of operation.
You should spend time reading through and understanding every bit of information in this document to avoid being caught in any legal complications in the nearest future. Also, it would be helpful to have a legal practitioner present for this process.
Top Performing Franchises in the US
Some of the best franchises to own in the US include Starbucks, Chick Fil A, McDonald’s, and Dunkin Donuts.
McDonald's has been a franchising company in the foodservice industry since 1995, with almost 14,000 units spread across 4,649 cities in the US.
If you're looking to become a franchisee in the McDonald's franchise, you'll most likely buy an existing restaurant. The number of new operators that enter the McDonald's franchise as a restaurant is minimal.
Requirements to meet to be considered for a McDonald's franchisee include:
- Minimum of $500,000 non borrowed personal resources as a down payment
- Extensive business experience
- Good management skills
- Willingness to undergo training
- Top-notch customer service
- Good credit history
Chick-fil-A is one of the most influential and successful fast-food franchises in the US. According to a study by Business Insider, Chick-fil-A restaurants are the most patronized fast-food restaurants in 38 American States.
If you're looking to buy a franchise in Chick-fil-A, it's essential to know that less than 1% of franchisee applicants are accepted. Also, they refer to their franchisee as operators, which matters because operators do not receive or own any equity in their businesses.
Requirements to be considered for Chick-fil-A operators include:
- Franchise fee of about $10,000
- Financial integrity and stewardship
- Proven business acumen and leadership
- Growth mindset
- Entrepreneurial spirit
- Strong character
Dunkin Donuts franchise
Since their inception in 1950, the Dunkin Donuts franchise, newly rebranded as just Dunkin', has grown to 9,403 units in the United States. Running with the slogan "America Runs on Dunkin," they've managed to build a reputation as the largest coffee and baked goods chain in America.
Dunkin' analyses which neighborhoods and cities would best support franchise growth and establishes their presence in those areas. This includes making strategic franchise placement decisions and taking advantage of real estate deals.
However, if you're considering buying a Dunkin' franchise, you should know that it costs a considerable amount, with an initial investment ranging from $1.7 million to $3 million. Also, you should expect to pay a minimum of $40,000 as a franchise fee.
Unfortunately, you can’t buy a Starbucks franchise. Why? Because Starbucks believes the franchise model might become compromised when it comes to preserving the consistency and quality of their services.
However, if you're really interested in managing the operations of a Starbucks store, you can open a licensed Starbucks store. Unlike owning a franchise, licensing is like renting the company's likeness and brand.
According to Statista, as of 2021, Starbucks accounted for 6,497 licensed and 8,947 company-operated stores in the US.
Finding the Right Franchise For You
When done right, buying a franchise could be a great small business investment that could lead to financial freedom.
Using all the information provided in this guide, you can now begin exploring franchise opportunities that align with your personal goals, skills, and experience.
For more insight or clarity on further question you might have on how to choose a franchise in the US, don’t hesitate to contact us.