A franchise typically starts as a single business. It may be a restaurant, hair salon, fitness center or even an insurance company. The business owner determines that the business is successful enough to open a second location, but he or she does not want to open the location directly. Instead, the owner sells the opportunity to do so to a franchisee.
Many well-known and popular establishments, including but not limited to fast food restaurants, frozen yogurt shops and hardware stores, are part of franchises. Entrepreneurs who would like to own a business but would prefer not to start one from scratch can purchase a franchise directly from the corporate headquarters. They will receive the backing of a large corporate presence, but they will still own their own businesses.
Purchasing a Franchise
To purchase a franchise, the applicant must have sufficient financial resources and business experience. The franchise as a whole will suffer if one location is not up to par or goes out of business. In order to maintain consistency across multiple locations and continue to develop a strong brand, franchise owners are very strict about the regulations and rules for owning and operating one of their franchises.
Can I own more than one franchise?
Whether you can own more than one franchise will depend on the rules of that particular franchise. Typically, most franchises both allow and encourage this type of behavior. It is not uncommon to meet a business owner whose goal is to continually open new locations of a single franchise in districts where he or she determines that there can be a large profit. However, some franchises restrict activity due to their own standards and distinct goals. Read the franchisee materials for a particular corporation to discover if owning multiple franchises will be restricted.
How does a franchise chain start?
A franchise chain typically starts with a single business owner at a single location. Often, the owner has the goal of franchising the business in the future. However, it is also common for the owner to simply desire a profitable business. Once that owner determines that the business model is sound and a second location can be added, the owner will have to determine whether he or she would like to also own that second location or sell the rights to open the location to another person. If he or she decides to franchise, the business model will be solidified so a franchise can be built.
How much does a franchise cost?
The franchise cost of any chain will depend on the predicted profits, the location and the support of the corporation at large. A very profitable franchise, such as a large, well-known hardware store, may cost upwards of several hundreds of thousands of dollars. On the contrary, purchasing a franchise of a small tutoring company with moderate profits may cost only $20,000 to $30,000. The level of support offered at the corporate level will also affect price. For example, an independent insurance office is notoriously very entrepreneurial, meaning that the individual franchise owner has a lot of control. This may be less costly than a chain whose corporation provides more support.
Which states are franchise registration states?
In a franchise registration state, the state must register and approve all franchise documents prior to sale of any franchise. These states include:
- North Dakota
- New York
- Rhode Island
- South Dakota
If you are selling a franchise anywhere in the state, these documents must be registered prior to sale. Previously, the FCC set a national requirement that you disclose your franchise documents to potential franchisees at your initial meeting. This is no longer a requirement. If you are selling a franchise across state boundaries, unique regulations may apply based on the laws of each state. Ensure you have fully researched and complied with these regulations prior to finalizing a sale.
What kinds of businesses can be franchised?
Nearly any type of business can be franchised, but most franchises are retail establishments. For example, coffee shops, yogurt shops, clothing stores, restaurants and hardware stores are commonly franchised. Beyond retail franchises, the International Franchise Association has a list of categories of potential franchise industries such as senior care, energy, truck and ATM businesses. Retail businesses tend to be the easiest business models to copy, which makes them good options for franchising. However, even complicated business models can be replicated effectively. Varying levels of control can be afforded to business owners looking for entrepreneurial opportunities.