How to Open a Franchise | My Franchise CPAs
Steps To Open A Franchise Covered Below:
1 – Decide Whether Franchising is Right For You
2 – Research and Pick a Franchise
3 – Attend Discovery Day For Your Chosen Franchise
4 – Speak With Other Franchisees
5 – Find a Location (if not home-based)
6 – Determine Funding Source (Lender, Savings, 401k)
7 – Form a Legal Entity (LLC, S-Corp, Partnership)
8 – Obtain All Necessary Insurance and Permits
9 – Finalize Funding
10 – Attend Franchise Training
How To Open A Franchise
The COVID-19 Coronavirus pandemic is wreaking havoc on many things. One of the biggest fallouts of the virus are our jobs. At of the time of this writing, 38.6 million Americans have filed for unemployment. So what can you do if you’re one of more than 14.7% unemployed individuals?
Open a franchise!
That’s right. I said it. Be your own boss. Use this pandemic as the last straw, the spark, your inspiration to get into business for yourself! But, rather than take all the risk and go through the countless headaches of trying to go into business for the first time by yourself, go in backed by a household name that has all of its processes in place and operating effectively.
Worked as a line chef? Open a restaurant franchise! Were you a plumber? Open a plumbing and home services franchise! Were you a massage specialist with a passion for people and pleasant smells? Open a spa franchise!
- Cleaning and maintenance
- Home services
- Senior care
- Food and restaurant
- Moving and storage
- Health and wellness
- And MANY, MANY more
So with all that said, how EXACTLY do you open a franchise?
Don’t worry, we know this process like the back of our number-crunching hands.
The process begins with…
1- Decide Whether Franchising is Right For You
Would you even want to own and operate a franchise? That’s a serious question that requires sincere thought. We NEVER recommend somebody purchase a franchise that is not 100% sure of this decision. The investment of money (and time!) are far too great to go into the decision lightly.
So what are some things you should consider when opening a franchise?
- Do I even want to own a business? Do I want to responsibility that comes with working long, hard days for myself?
- Am I self-sufficient? I won’t have a boss keeping up with my work. Will I be motivated to keep going, no matter how I feel, every single day?
- There is considerable compliance involved in opening and maintaining a franchise. Federal, State and County taxes, licensing, payroll and sales taxes, annual reports, just to name a few. Will I be responsible and stay on top of all of my requirements?
- As a franchise owner, my creative control is severely limited. I’m McDonald’s, and that’s it. I can’t change my products and services. Am I OK with this? Do I require creative control to be happy and successful in my business?
- Am I extremely organized? Business can get messy quickly, and a very high level of organization is critical to success in ANY business.
2- Research and Pick a Franchise
You got over the first hurdle of mentally and spiritually accepting your decision to purchase a franchise. Great job! You’re well on your way to financial freedom and self-sufficiency in business. Next, a MONUMENTAL question is: Which franchise is right for you? The answer is a function of two items: experience, interest and opportunity. You must be WILLING and ABLE to operate the franchise you want to purchase. Your willingness is more important than your ability. You can learn to do most things, but it is difficult you like something you just don’t like. For example, if your experience is in the restaurant industry but you hate everything about the restaurant business, don’t open a restaurant franchise! Maybe you really enjoy going to the spa, so you may consider opening a spa franchise and learning the business.
You also must consider the opportunity. Is the franchise you are looking at:
- booming, or busting?
- 1,000 franchisees or 3?
- A household name (think McDonald’s vs Sneaky Pete’s Burger Joint)?
- Earning high top-line revenue but low bottom-line profit (BE CAREFUL! The franchisor will often steer your attention toward the top line but be vague about the bottom line. Remember, it does not matter how much money you make. It is how much you keep at the end of the day that matters as a business owner.)
- Have the location you are looking at available? Franchises are typically split up by territories, so if yours is taken, you must look to another location or another franchise.
- -What’s the cost? How does that compare to other franchises in the same industry?
By considering your willingness and ability to operate the franchise of choice, as well as how good of an opportunity the franchise is, you will likely make a great selection
3- Attend Discovery Day For Your Chosen Franchise
So you are all in on franchising and know the right franchise for you. Give them a call and they will invite you to Discovery Day, which is where you go on-site to their location, meet the team, see their offices, and get introduced to the inner-workings of the franchise. How does the process work? Where do you begin? How long does it take to open? What next? Who will guide you along the way? Learn all this and more at Discovery Day.
4- Speak With Other Franchisees
Prior, during or after Discovery Day, the franchisor will likely provide you with a list of existing franchisees to speak to. This is a great opportunity to hear it straight from the horse’s mouth.
You can ask them:
- How has it been going?
- Was the experience as you expected?
- Are you making as much money as you had hoped? (I tend to think it’s rude to ask for numbers, but you can at least as if expectations are being met)
- What would you have done differently?
- What has been the best part of your experience so far?
- And anything else you can think of!
5- Find a Location (if not home-based)
Location, location, location! Where are you going to open? The franchisor will typically work with you in determining a location. After all, they have been placing (insert restaurant, spa, convenience store, etc. here) in prime locations for years! Work with your franchisor to find that sweet spot where sales will soar.
6- Determine Funding Source (Lender, Savings, 401k)
There are many ways to fund your franchise. Got a hefty savings? You can pay for it yourself (although I would not recommend this).
Got money but it’s all trapped in a 401k? No worries, they’ve figured out a workaround for this. You can enter into a Rollover for Business Startups (ROBS) agreement, where you funnel your 401k funds into a new business which then purchases your franchise. There are many implications to this transaction; if you have questions, set up a call with our franchise experts here.
The best option in my opinion is to obtain a Small Business Administration (SBA) loan. You can obtain $150,000, typically within 30 days (extended slightly due to the pandemic). I could write a couple blogs just on this process; we have streamlined and automated much of it to best serve aspiring franchisees. If you have gotten this far, let us help you. Set up a call with our franchise experts here.
7- Form a Legal Entity (LLC, S-Corp, Partnership)
In order to be awarded your new franchise, you need to have a legal business entity. Not only do you need to figure out which legal entity is best for your industry, state and situation, but you also have to determine where and how to accurately file. This can be a difficult process, especially depending on the state. To have us make this process a breeze for you, set up a call with our franchise experts here.
8- Obtain All Necessary Insurance and Permits
There is significant compliance required to open and operate a business in most states, counties and cities. The licensing and insurance required varies greatly. Not sure which licenses you need to open in your state/county/city? We do. If you would like us to handle your licensure for your new franchised business, set up a call with our franchise experts here.
9- Finalize Funding
Whichever funding method you chose, it’s time to fork up the dough. Obtain your funds and pay your initial franchise fee to the franchisor, plus any other required costs. Up to this point you will have paid for filing, legal and accounting fees as required; you can pay yourself back for this costs from your loan funds if you took out an SBA loan. This is also a good point to set up a business bank account; your SBA funds will be deposited here. You also want to obtain a business credit card for separate tracking of all business costs.
10- Attend Franchise Training
What, did you think after getting this far they would just let you open the doors? Heck no! You need to learn your franchise. Breathe it, embody it, live it…know your products, services and process inside and out. You will get all of this and more at your mandatory training prior to opening. These training range from one to two weeks. This is also a great opportunity to build alliances with other franchisees, picking their brains for useful advice.
And….THAT’S IT! You are now the proud owner of your very own franchise! I’m so proud. Go out there and be a great success!
…Wait, now you want to know how to actually RUN the thing and be successful? That’s a whole other story. All franchisees go through the same opening process, but not all franchisees employ the same strategy for success. This is where having a savvy franchise expert comes in to play.
What if you had your own CFO to monitor the performance of your franchise? Your CFO would:
- Take care of ALL state, county and city compliance, so you can breathe easy
- File all sales and payroll taxes
- Manage the accounting and reconciling of your franchise’s books
- Manage sub accounts, such as collections from customers and payments to vendors
- Guide you with a professionally-crafted Roadmap, planning out the next 5, 10, and 20 years of your franchise endeavor?
- Tell you how much to pay yourself and when to minimize taxes?
- Help you manage your business cash flow?
- Keep you on a budget?
- Hold high-level expert meetings where you will review your franchise performance against Key Performance Indicators (KPIs)?
- Perform quarterly federal tax estimates, which is required by the IRS?
- Make sure your business and personal assets are protected, minimizing your risk?
- Act as a true partner in your franchised business?
If any of the above would be helpful, you can find out more by setting up a call with our franchise CFOs here.