FREQUENTLY ASKED QUESTIONS
It is likely there is a compelling reason you are interested in franchise ownership. Something has pulled you to shift your thinking from your current situation, career or business and consider franchise ownership. Or you are just curious about franchising, which is everywhere around us but yet holds mystery for many people. Here are answers to some of the most frequently asked questions.
Is now a Good Time to Start a Franchise Considering Covid-19?
The historic Covid-19 pandemic has forced much of the U.S. and global economy to shut down at least temporarily. There are winners and losers in the economy, with essential services being bigger winners, while non-essential services have had extended shutdowns depending on state and local regulations. There are always risks to starting a business, and certainly now is not the right timing for everyone. However, with every crisis comes opportunity, as many of the largest companies in the economy right now started during recessions or market disruptions.
For essential services, which is a large part of franchising, there is strong demand among new franchisees who want to leave unpredictable corporate America. These businesses are both surviving and also building pent up demand. Examples include residential services, senior care, cleaning services, restoration, just to name a few.
For non-essential services that are harder hit, including industries with customer-facing real estate, there is a logic for many candidates to pursue those industries now. Weaker independent owners in fragmented markets will be eliminated or mitigated, and stronger players will emerge with more market share. Retail real estate may have better economic lease terms than any time in recent history. These businesses are also likely to see the most pent up demand. Examples include fitness, hair care, salon suites, and automotive.
Completing a strong due diligence process and investigation into any franchise opportunity is always imperative. With proper due diligence and the right understanding of the market opportunities, many candidates are finding that now may be a perfect time to invest in starting a new business, while the market will be bottoming and concessions from franchisors, landlords and financing may be the best they have ever been.
What Exactly is a Franchise?
Is Franchising Right for Me?
Are you frustrated in your current career or looking to build a sustainable and valuable future for you and your family? Do you love the thought of running your own business but have no idea what type of business you should consider?
Starting a franchise can be an ideal way to launch a business because of the benefit of building on a proven concept while much of the marketing and routine, operational and back office processes are already set up and streamlined. This reduces significant risk, research, and trial and error. In return, the franchisor receives a royalty, typically structured as a percentage of sales. All good franchises will offer a suite of services and support in return for the royalty. All good franchise systems have a partnership mindset.
You should feel comfortable with following someone else’s system before starting a franchise. One reason franchising is successful is consistency. The franchisee must follow established policies and processes to ensure a consistent product or service. If you want to be creative and make your own way, franchising might not be the solution for you.
What Kind of Franchise Businesses are Available?
What is the Franchisee Role in a Franchise?
- Owner-operator – Daily, Direct Involvement
- As an owner-operator, you are the heart and soul of the business. Everything that happens really revolves around you – if you have employees, they see you as their direct supervisor, customers call on you personally and all business activities are within your direct control. You may not have employees but rather rely on technology and the franchise corporate team to help deliver your product or service.
- Many owner-operator style businesses revolve around personal or home services as these businesses lend themselves to this style easily. This category is sometimes also called the self-employment option.
- Executive owner – Daily, Indirect Involvement
- Executive owners take a different approach. They are still involved in their businesses daily and are the primary decision maker, but are driving the activities of the business through a manager or team of employees. It is the managers who are on the front line of employee oversight and customer interaction.
- The executive owners focus their attention on monitoring Key Performance Indicators (KPIs), financial management, team building and strategic planning. Though involved every day, they have a more executive type of role and work day.
- Semi-absentee owner – Weekly, Indirect Involvement
- A completely different approach to franchise ownership takes the form of semi-absentee ownership. In these franchises, the model is setup so that the business owner is removed from the day to day operational details. Instead, all of the daily tasks are handled by a manager.
- The owner’s role is part-time and from a distance. The owner is physically present in the store on only a limited time basis each week – time for drop-ins and management meetings. The majority of the owner’s time is spent remotely on performance monitoring, telephone and email communication with managers and back office tasks.
How Much Does it Cost to Buy a Franchise?
This is a huge range and many items go into the cost of a franchise which can vary wildly depending on the industry and business. Item 7 in the Franchise Disclosure Document (FDD) outlines the estimated cost for every franchise and is your best source to answer this. However, there are some broad guidelines that can help understand the scope of typical franchising investment levels.
On the lowest end, self-employment franchises may allow you to get started with as little as $50,000. For the cost of the franchise fee, computer equipment, marketing collateral and software, you can get started. On the other end of the scale, a newly built hotel franchise may cost $20 million to get open and operating.
A large majority of service franchise brands fall into a few categories—amounts here are simply broad guidelines—check Item 7 of the FDD for a brand to understand estimate costs:
- Owner-Operator: $50,000 – $250,000 per unit or territory
- Executive: $100,000 – $350,000 per unit or territory
- Semi-Absentee: $250,000 – $1.0 million per unit or territory
The above ranges cover a wide swath of industries and brands, but exclude restaurants, hotels and other franchises that require standalone real estate, raising investor capital or generally are larger than $1.0 million for a single unit or territory.
How do I Choose a Location for my Business?
Most franchisors provide real estate expertise to franchises to help with this decision, including demographic analysis, psychographics, site selection criteria and real estate brokerage service and referrals. There may also be territory restrictions to protect franchises of the same business from internal competition.