Before you sign on the dotted line for your new franchise business opportunity, there are quite a few steps you need to conquer first. From selecting the right fit for you to showing up on Discovery Day, and everything in between, there are several first steps in buying a franchise.
- Find the right franchise fit for you. Entrepreneur Magazine says you should “ask yourself what you really want to achieve by owning a business. Things like, what hours you want to work, what kinds of things are you good at and like to do, how much money can you afford to invest and what returns will you need to produce from the business?” Additionally, you should be giving thought to where you want to live and operate your business, as well as to what your exit plans are. “Once you understand what’s important to you, you’ll be able to evaluate any franchise opportunity and know if it’s a good match.” Entrepreneur suggests taking a master list of franchise opportunities, like the Franchise 500, and reviewing it – focusing on industry groups instead of individual companies. Slowly go through the list and cross off any industry segments that don’t meet your desired criteria.
- Submit a request for consideration. Choose two to three industry segments to get started – like fast food franchises, cleaning franchises, and healthcare franchises. Within each of these categories, you can then choose a couple of companies that you’d like to get to know more about, and can request information from. If you aren’t seeing anything you like, go back to your segments list again and choose more. These companies will match you with someone from their organization, and you should be getting information from them via email or phone within about a week.
- Take a look at the Franchise Disclosure Document (FDD). This is when you explore the industry, company, and business model in more detail. The FDD is a legal document required by the Federal Trade Commission (FTC) that is designed to help you understand the business model, fees, and commitments. FDDs can be lengthy – some more than 200 pages – but don’t be intimidated. Start out with the sections of the FDD that interest you, like the fees, advertising, and restrictions; and then move on to the more nitty-gritty.
- Secure financing. There are very few people interested in investing in a franchise who have enough on-hand capital to cover the upfront and ongoing costs outright. There are several options for financing, including commercial loans, SBA loans, and Patriot Express loans. The Wall Street Journal says it might be a good idea to take a look at commercial loans first, as commercial banks fund many franchise business opportunities.
- Review the FDD. This is when you and your franchise representative will have an in-depth conversation about the FDD. You can discuss what your territory will be, and ask questions section-by-section during the FDD review process.
- Do Your Due Diligence. In your first steps in buying a franchise, make sure you have the opportunity to talk to someone at the corporate office of each franchise that you’re considering, as well as fellow franchisees. At this stage, you are evaluating how this franchise concept fits your needs.
- Celebrate at Discovery Day! If everything goes well, showing up to Discovery Day is the final step in being awarded the franchise – it’s the day you sign the Franchise Agreement and officially open for business.