In this post, I’m going to teach you everything you need to know about how to buy a franchise.
Furthermore, I’m going to teach you how to do it in an easy to follow, step-by-step way. But I’m not talking about buying just any franchise. On the contrary. I’m talking about purchasing a franchise you can make money owning. Ready?
How To Buy A Franchise: The Steps
1. Determine why you want to buy a franchise.
2. Learn about the franchise business model.
3. Make sure you are 100% comfortable following rules.
4. Put together a list of your top skills.
5. Create a list of your dominant personal traits.
6. Put together a net worth statement so you can figure out your budget for a franchise.
7. Search for franchise opportunities that closely match your top skills and dominant personal traits.
8. Contact the franchisors that seem to match.
9. Start doing your research. (Use “The Definitive Guide to Franchise Research.”
10. Figure out your funding and write your business plan.
11. Arrange a visit to headquarters.
12. Once you’ve narrowed down your choices to one, hire a franchise attorney to go over your franchise disclosure document and your franchise agreement, so you can make an informed decision on the business you want to buy.
Read on, so you can learn my step-by-step techniques for buying a franchise business.
Why Do You Want To Buy A Franchise?
See if your reasons to buy a franchise match any of the ones I list here:
1. You don’t want to have a “job” anymore.
2. You’re sick of making money for someone else.
3. Your work-life balance sucks.
4. You want equity in something.
5. You want to build wealth.
6. You want more control of your future.
7. You want more freedom.
8. You’d like to have some flexibility.
9. You’ve always wanted to own your own business.
10. You want to build something your kids can buy-if they choose.
Did I name one of your reasons for wanting to acquire a franchise to own?
If so, great. If not, what is your reason?
With that in mind, let’s find out if franchising is the way for you to go.
Buying A Franchise: The Process
Contrary to popular belief, the process of buying a franchise isn’t really difficult-but it is a process. I’ve found, (through working one-on-one with thousands of potential franchisee’s) that it’s really important to tackle a major life decision (with an average initial investment including the franchise fee at $100,000+) like the purchase of a franchise-or any type of business, in a very methodical way. Even if you’re not a methodical person!
But you need to realize that buying a franchise is a big deal. It’s potentially life-changing…in a good way.
And you probably wouldn’t be reading this if you wanted to just go out and find a new job -or just keep the one you have.
With that in mind, kick off your shoes and grab your favorite beverage. I’m going to show you exactly how to buy a franchise.
If you’re like 99.5% of the people I’ve worked with over the years, I’m going to assume you’ve never bought a franchise before, so you may be a bit hesitant. That’s okay.
And speaking of assumptions, I’m also going to assume that you want to get to the heart of the matter…that you don’t want to waste a lot of time on business theory and franchising statistics. You just want to learn how to buy a franchise business so you can be your own boss and start doing things for you.
If that’s the case-if you don’t want to play around and go from franchise website to franchise website trying to figure out how to not get screwed when you buy a franchise, keep reading. I want to talk about safety…risk factors.
Is Buying A Franchise Safe?
Is it safe to drive around at 3:00 in the morning in a not-so-good neighborhood?
Is it safe to swim in the ocean, knowing that there are dangerous fish lurking below?
Is it safe to quit your job before you have something else lined up? (Personally, I never believed in that theory. I always left a job before I had something else going on. It pissed my Dad off to no end.)
To be sure, everyone looks at what’s safe and what’s not, differently.
But when it’s all said and done, it’s really about your risk level, and ways you can use to reduce it.
“This nation was built by men who took risks – pioneers who were not afraid of the wilderness, business men who were not afraid of failure, scientists who were not afraid of the truth, thinkers who were not afraid of progress, dreamers who were not afraid of action.”
– Brooks Atkinson
To that end, one of the best ways to lower your risk is by obtaining the knowledge necessary to make a fact-based decision on how to own a franchise. After all, knowledge is power, right?
You Need To Learn All You Can About Franchising Now
In franchising, it’s not only important to learn all you can about the business model, but it’s also important to figure out if becoming a franchisee is right for you.
Why is this important?
In this specific instance, you may be interested in the hottest franchise south of the Mason-Dixon line, but if you’re not cut out for franchise ownership, it’s extremely risky to move forward and buy it.
Note: If you’d like to learn more about me, including my background in franchising, before you continue reading this article, go to this page. I want you to feel confident about the information I’m sharing here.
How To Buy A Franchise
To begin with-and this is really important, if you want to become the owner of a franchise someday, you need to know what a franchise is.
The Franchise Model
The franchise model involves a business owner (franchisor) licensing trademarks and methods to an independent (franchisee) businessperson. The franchisee usually operates this business-the franchise, within a specified and protected (usually) territory. This franchisee is permitted to use the franchisors trademarks, business systems, software, signage, along with the other proprietary materials. Of course there’s an initial investment (including a franchise fee) needed to become a franchisee!
The bottom line: You are buying a license.
Important: The franchisor is the entrepreneur. The franchisee is pretty much not. Please read those two short sentences again. They’re crucial. You need to know who’s who and what’s what in the franchisor-franchisee relationship. A lot of people have lost a lot of money as franchisees because they fooled themselves into thinking they were the entrepreneurs.
With this in mind, one only has to read about McDonald’s Ray Kroc to understand who the entrepreneur really was.
The franchisor is the one who came up with the idea for a franchise.
The franchisee is the one implementing it.
Please don’t confuse the two.
Important! Are Franchisees Entrepreneurs?
If you own a franchise, you’re not an entrepreneur. At least not a “pure” entrepreneur.
To bring to light what I mean, here’s part of an article I wrote for American Express Open Forum:
“I say that franchisees are not entrepreneurs. The person who came up with the concept, and invented the franchise system for that concept is the entrepreneur. Pure entrepreneurship is much different than being a franchisee. A true entrepreneur would get nauseous when during training, a 300-page operations manual was slapped on his or her desk. Franchise operations manuals don’t leave too much room for innovating.”
I invite you to read the entire article here. Then pop back. There’s more to learn.
It’s important for you to make sure you understand how rigid the franchise model is.
In addition, you need to know what the pros and cons of franchising are. No legitimate article on buying a franchise would dare omit it. Read Franchise Pros And Cons
Note: If you’re serious about becoming the owner of a franchise, read this entire article…from start to finish. It’s chock full of tips and techniques you’ll be able to use each time you find a franchise opportunity that you feel makes sense for you. Okay?
How To Buy A Franchise Business: The Importance Of Knowing Thyself
I promise you’re going to like this section of my article. That’s because you’re going to be learning about one of your favorite topics: You. (And how you may end up being a great fit for franchising.)
You’re okay with that, right?
Now, I want you to read the two sentences below.
“Owning a franchise isn’t for everybody. As a matter of fact, it’s really not for most people. “
Those two sentences happen to be located on the inside sleeve of my hardcover book on franchise ownership.
Do you know why most people aren’t right for franchise ownership?
1. Most people aren’t risk-takers.
Don’t kid yourself; buying a franchise can be risky. Heck, buying any business-starting any type of business carries risk. Franchising is great-for the right person, but it’s not magical in the sense that owning one will make the risk go away.
My feeling is that buying a startup franchise can be less risky than starting a business from scratch.
- The person is right for franchising
- The person is ready to own a business
- The person has enough money to help ride out the first 1-2 years in business
- The geographic location is a match for the franchise type
- Family members are supportive
- A franchise business plan has been written
- The right type of franchise loan has been utilized
Notice I wrote, “can be less risky.”
That’s because there’s no guarantee. You can lose your money when you buy a franchise business.
But stick with me. I’m going to show you how to lower your financial risk when buying a franchise.
Essentially, I’m going teach you how to seriously stack the odds in your favor.
*** Before you go to the next section, you need to know that there are several “facts” about franchising that really aren’t facts. They’re actually Alternative Facts. Knowing what they are before you start your search for a franchise to buy will help become a smart buyer.***
Let’s Talk About Rules
Here’s a fact: Some people hate rules.
That’s right. There are people in this world who really dislike following rules.
If You Don’t Like Rules Don’t Purchase A Franchise
To clarify, the franchise business system is a totally rule-based one. It needs to be. Rules are the reason your Burger King® Whopper™ tastes (and looks) the same whether you purchase it at a Wichita, Kansas Burger King restaurant or a Tampa, Florida Burger King restaurant.
To put it another way, rules are what makes the franchise world go round. These rules can be found in the franchise operations manual-a 300-page document that lays out everything you need to know about operating your business.
So, are you right for franchise ownership? Are you a rule-follower? Will you follow all the operating procedures in the operations manual?
Let’s Find Out If Buying A Franchise IS A Good Idea For You
In 2006, I decided to put together a quiz…a free franchise quiz.
At the time, there really wasn’t a way for prospective franchisees to determine if he or she was right for a franchise type of business.
The franchise quiz I created isn’t at all scientific. But, it is a pretty darn accurate one. It’s been mentioned in Entrepreneur Magazine®, along with several other online and offline business publications. It’s 100% free, and I personally grade each quiz by hand.
With that in mind, would you like to take my Free Franchise Quiz?
(When you’re done taking the quiz, make sure you come right back to this article. I have a lot of great information to share with you)
Time To Unplug
I want you to take a day or two to focus on you, distraction-free.
Unplug. Quiet your Smartphone and quiet your mind.
“Joel…what does this have to do with buying a franchise?”
This is important:
You are welcome to skip the next section on where to search for a franchise. Really. Just know that you’ll increase your financial risk-substantially. But, it’s your money.
And, as an added bonus, if you choose to skip this little section, you’ll be doing what 75% of today’s prospective franchise owners do, which is starting a search for a franchise in the wrong place.
Most people start searching for a franchise by searching for a franchise.
But that’s not how to do it. It’s the wrong place to start searching.
To find out the right way to search for one, go to the next section, so you won’t be like 75% of today’s franchise buyers. Learn how to acquire a franchise…the right way.
Important! Make sure you know what your net worth is before you start your search for a franchise. Use my Important! Make sure you know what your net worth is before you start your search. Use my Free Net Worth Calculator
How To Purchase A Franchise: Start Your Search Here
You need to start your franchise search with you. Forget about the actual opportunities that are available. They don’t matter. Not yet, anyway.
Without exception, what really matters is you. Your top skills. Your personal characteristics. The things that make you tick.
Maybe if I provide an example of what I mean, you’ll understand how important it is for you to not look at specific opportunities yet.
A Helpful Example
Let’s say you’ve been obsessing about a specific food franchise.
You’ve visited this franchise as a customer-lots of times, and have even brought your family with you on a few occasions. You love the food. Your family likes the place, too.
One day you decide you want to own one. You can easily see yourself as a franchisee of let’s call it “Joey’s Amazing Burgers And Fries.”
Your obsession gets the best of you-you’ve wanted to be your own boss for a while now, anyway, so you contact Joey’s Amazing Burgers And Fries corporate headquarters for information.
Someone from headquarters follows up with you, and you’re able to get some of the particulars, including information on your initial investment-including the franchise fee along with other upfront and ongoing costs.
Despite the fact that the startup costs are a bit out of your financial comfort zone, you keep pursuing this opportunity, because you really like it and believe in your heart that you could be a successful franchisee. Except…
You’ve never worked in the food business. You come to the table with no restaurant experience. But, there’s more.
Training. And More Training.
There’s a lot of training involved in a food franchise. Thing is, you don’t like training people. As a matter of fact, you don’t even like the idea of having a bunch of employees to manage. That’s because you’re not exactly patient. And, you don’t have to be in your current role as a territory salesperson. That’s because you manage a territory. You don’t manage people.
Tip: This could be a problem if you’re the owner of a food franchise. Obviously.
Or Not Obviously.
That said, you’re so obsessed with Joey’s Amazing Burgers And Fries…so pumped about the idea of being your own boss, you aren’t focused or worried about having a lot of employees to manage. And train. And hire. And fire.
You Just Want To Be Your Own Boss!
I get it. But, in this example, you’d be setting yourself up for failure…for financial ruin. That’s why it’s crucial to figure out your top skills and determine what your dominant personal characteristics are.
The Bottom Line: Before you start looking for a franchise to buy, put a list of your top skill-sets and dominant traits together. Otherwise, you’re just spinning your wheels….you’re wasting precious time. Make sense?
Your Top Skills And Personal Traits Lists
Here’s how to create your list.
Think about and then list your strengths.
In other words, what are your top skills? What are you great at, work-wise?
Marketing? Accounting? Sales? Operations? Write them down.
Next, add what you feel are your dominant personal traits.
For example, are you outgoing? Compassionate? Helpful?
Do you consider yourself detail-oriented, or more of a big picture person?
Whatever you come up with, write it down.
Now put your two lists off to the side. You’ll need them in a while.
Finally, it’s important for you to take your time with this list. After all, this is your life we’re talking about…
How To Buy A Franchise: The Money Part
Before I show you how to match yourself to the right franchise opportunities, we have to talk money.
Specifically, have you decided how much of your own money you’re willing to invest if you find that “perfect” franchise opportunity?
Let me start off with by sharing something with you that’s really important to know when it comes to franchise financing: There’s no such thing as a “no money down” franchise business loan. These days, lenders need to see that you have some skin in the game. Figure you’ll have to come up with around 30% of the total franchise business investment. For example, if the total investment of a certain franchise is $225,000, which includes the franchise fee, equipment, store build-out, starting inventory, and working capital, you’ll have to write a check for around $65,000 and finance the rest with a bank.
Now of course, not all franchise opportunities cost $225,000. Some franchises cost $500,000 or more. Some franchises, like these, can be had for around $100,000….or less!
Tip: If you can only come up with $10,000 – $20,000, you probably won’t qualify for a franchise. That’s because most franchisors have minimum financial requirements. You can see what they are here.
In the final analysis, you’ll save yourself a lot of time if you can figure out your budget before you start looking for franchise opportunities to investigate.
Franchise Opportunity Matching
Let’s do this!
Get out the two lists you made of your top skills and your most dominate personal traits. It’s time to search for a franchise to buy.
Go to any of these top franchise opportunity websites and start searching for franchises that will allow you to utilize the things you’re really good at.
Tip: Dig into the opportunities you find enough to figure out what the role of the franchise owner is. See if you can figure out if the role is a match for your dominant personal traits.
When you find a franchise opportunity that looks really interesting and matches your skillsets and personal traits, don’t stop there. Look for one or two more in the same business sector that are similar. Spend some time on their websites. Compare.
An Important Step
Now it’s time for you to request information from the franchisors. (If there are three similar ones, choose two to contact so you don’t get overwhelmed.) Requesting information is really easy. There’s usually a web form for you to fill out on the franchise opportunity website you found them on, or on the individual franchise website.
Wait to get contacted by someone from the franchise development team.
Set up a time for your 1st call.
Another Way To Match Up To A Franchise Opportunity
It’s perfectly alright to match yourself to franchise opportunities that you feel may make sense. But there’s another way to do it-and it’s free.
You can work with a franchise consultant.
Tip:franchise consultants go by other names, too.
A Franchise “consultant” is really a franchise broker who’s using a fancier name.
So is a franchise “coach.”
However, they all do the same exact thing.
They offer “Free Franchise Consultations.”
In a nutshell, they offer to match people like you-who are looking to possibly buy a franchise, to franchise opportunities that they feel are a good match for you.
But here’s the thing; They’re only offering their services for free because of the large commission checks they’ll receive if you buy the franchise they “match” you to. And the amount money they make? It’s based on the franchise fee you pay.
For more specifics, read my comprehensive article on franchise consultants if you’d like to find out exactly how much they get paid by franchisors to match you up to their franchise opportunities.
And if you’re feeling extra-brave, there are a few ugly truths about today’s franchise brokers that you need to know about.
Your First Call With The Franchisor
The first phone call is generally one of those “let’s get to know one another” type of calls. You’ll be asked a few questions about your current career, your reasons for wanting to be your own boss and some other things related to your interest in the opportunity. You’ll also be asked about your current financial situation. Then, it will be your turn to ask questions.
10 Powerful Research Questions To Ask on Your First Call
Here are 10 must-ask questions to ask the franchise development representative on your first call:
1. How long has the company been in business?
2. How long has the salesperson been with the company?
3. How many franchise units does the company currently have?
4. What does the franchisor look for in a franchisee?
5. What is the total initial investment including the franchise fee?
6. Is there territory available in my area?
7. Does the franchisor offer financing?
8. What is the failure rate?
9. How long will it take to go through everything I need to know and make a decision?
10. What does the future hold for this franchise concept?
After this call, it’s up to you to determine if the opportunity you’re looking at is interesting enough for you to keep investigating. You need to decide if you can see yourself as The Owner of the franchise…as a successful owner. If so, keep going. Do what they ask. Fill out their formal application. (There is no obligation if you fill this out)
If after your 1st call, the opportunity is not what you thought it was, or just doesn’t “feel” right,” move on to something else. There are lots of other choices.
It’s Time For Franchise Research
This part of the franchise purchasing process is the most time-consuming part of the deal. Don’t rush through it. It’s not worth it. I guarantee you’ll miss something.
How To Do The Research
In order to do your research the right way, you have to find the people who can-and will give you the answers you need.
Some of your questions (like the 10 questions I provided above) can be answered by the franchise development representative at headquarters. Some can’t.
The tough questions…the ones that will get you to a yes or no decision on purchasing the franchise you’re interested in, have to be asked of the franchisees. They’re the ones who have already invested their money in the franchise you’re thinking of investing your own money into. They’ve signed a franchise agreement. And they’re the ones living and breathing the business day after day, year after year.
Time To Dial-Up Franchisees
The first way to get answers to your questions is to get franchisees on the phone.
Tip: To find franchisees to call, just look in the Franchise Disclosure Document (FDD) you’ll be receiving. The names of every single franchisee are listed in it. I’ll teach you about the Franchise Disclosure Document in a bit.
In essence, you need to spend a lot of time on the phone with current franchisees to get the answers you need to make a smart decision. And believe it or not, lots of people don’t do this.
How many franchisees should you talk to?
You need to have meaningful phone conversations with at least a dozen franchisees as part of your research. But, don’t stop there. Watch the short video I produced below to learn the second way to get answers to your questions.
5 Crucial Questions To Ask Franchisees
The 5 questions I’m providing below should be asked of every franchisee you talk with. They’ll help you get to the heart of the matter. They’ll help you determine if the franchise you’re thinking of buying is the right one for you.
1. Why did you choose to purchase this particular franchise?
The answers you get from the franchisees will either reinforce your reason (s) for choosing the franchise, or provide even more of them.
2. Are you happy with the support you’re getting?
Every franchisor in the world mentions “great support” as part of the reason you should buy their franchise. It’s easy to say in the heat of the moment…when they’re trying to convince you to buy their franchise. But, do they really provide it? You need to find out. Ask the franchisees!
The franchisees will tell you if they’re getting good support or not. Having a support system in place-a great support system, is crucial to your success as an owner. Plus, you’re paying for it in the form of royalties each and every month.
3. What’s your competition like?
I love hearing answers to this question.
You may have a good idea of who the competitors are, because you ran across them as you searched for opportunities online. But, there may be other competitors that you aren’t aware of. Wouldn’t you like to know who they are before you become a franchise owner? Ask!
4. What is your favorite part of the business?
It’s important to know that the answer (s) you get may end up securing the deal-in your mind.
No one wants to be involved in a business they don’t like…they aren’t enthusiastic about.
Ask this question of the franchisees so you can find out what gets them out of bed in the morning.
Don’t you want to know what will possibly get you out of bed each morning as the Owner of the franchise business?
5. What do you wish you would have known before you acquired this franchise?
Hardly anyone asks this one.
This research question is powerful. It’s what I call a “money question.”
As a matter of fact, the answer you get here may end up helping you determine if you should write a check for the franchise fee to the franchisor or not.
In addition, the answer may bring up some something you haven’t thought of. This is your opportunity to get some real inside information. Use it to your advantage. In some cases, the answer you get may end up helping you make money faster.
A Bonus Question For You To Ask:
Are you aware of any unhappy franchisees?
Now it’s a tough question to ask, but you need to ask it. Why is it tough?. Because it could lead to information about the franchise company that you don’t want to hear.
That said, I want you to go even further. I want you to call them…call the unhappy franchisees. I want you to find out why they’re unhappy. They may be unhappy because of what the franchisor is or isn’t doing-in their opinion, or
It may be Them.
Some franchisees just aren’t good businesspeople. Some franchisees aren’t a good fit for the concept they own. There are lots of reasons why some franchisees may be unhappy. The trick is to find out why.
FYI: If franchisee unhappiness is system-wide, it’s a huge red flag.
Now, I don’t expect every single franchisee you call and/or visit to be amazingly happy. But, most of them should be happy and profitable.
Tip: If 85% of the franchisees you call/visit are reasonably happy-and are making money, you are onto something. Keep going.
Go to the next step.
You Need To Hire An Attorney
As Decision Day gets closer, you’re going to want to have an attorney at your side.
But, not just any attorney.
A franchise attorney.
That’s because you need to be protected.
In other words, your interests need to come first here. Period. Don’t look at this in any other way. Take your emotions out of the equation. Acquiring a franchise is a business transaction.
Despite the fact that today’s franchisors are more transparent than ever about how they operate, lawsuits do happen. You could get sued by a customer…or even a vendor. You could also get sued by the franchisor. You don’t want that. But, occasionally it happens.
Imagine what would happen if you got sued by your franchisor. Really imagine it. Feel it in your gut. Now, feel it some more. Are you feeling sick to your stomach yet? I hope so!
If not, here…let me help.
I know. That was gross. It was a pretty sick thing for me to do. But, I’m not sorry. I’m just trying to make a point. Did I succeed? Do you need a few more reasons? They’re listed on this franchise blog post
Now, it is kind of a longshot that you’d get sued by your franchisor. But, wouldn’t it be great if you could put a few things in place ahead of time to protect yourself if it did happen?
Your franchising attorney is paid to look out for your interests, not the interests of the franchisor.
Fact: The franchisor has a franchise attorney at the ready to protect their interests. Need I say more?
Watch This Short Video On Franchise Attorneys
23 More Reasons To Hire A Franchise Attorney
You’ll need to hire a franchise attorney to go through the Franchise Disclosure Document (including the franchise agreement) with you.
Note: The FDD FDD contains crucial information about the franchisor…and about your obligations as a franchisee.
23 crucial items are listed in the FDD…by law.
In addition, the actual agreement-the contract, is included in this important document. It’s not an easy read.
It is an easy read for an experienced franchise attorney, though. One who has read hundreds of FDD’s and may have even written a few of them.
It’s especially important that you don’t go through this document alone. Have a franchise attorney go through it with you.
FYI: Some franchise development representatives will tell you that you’re wasting your money by hiring an attorney because nothing in the franchise agreement is negotiable.
Ignore their suggestion.
Especially since you may about to be investing your money into their franchise opportunity.
Furthermore, I don’t care if the franchisor will negotiate something in the franchising agreement or not. It’s not the point. You need legal representation before you enter into a legal agreement, period.
Tip: Most of us have a family member or two that are attorneys. Don’t use Uncle Ralph or Aunt Ann unless they are experienced franchise attorneys…even if they offer their legal advice for free. Even if they’re “business” attorneys. Franchise agreements are pretty complicated, plus the laws change all the time.
Items Listed On The FDD
Since I’m not sure if you’re convinced about hiring an experienced franchise attorney, I’ve gone ahead and listed the 23 items that are included in the FDD.
- The Franchisor, its Predecessors, and its Affiliates
- Business Experience
- Initial Franchise Fee
- Other Fees
- Initial Investment
- Restrictions On Sources Of Products And Services
- Franchisee’s Obligations
- Franchisor’s Obligations
- Patents, Copyrights and Proprietary Information
- Obligation To Participate In The Actual Operation Of The Franchise Business
- Restrictions On What The Franchisee May Sell
- Renewal, Termination, Transfer And Dispute Resolution
- Public Figures
- Earnings Claims
- List Of Outlets
- Financial Statements
Some of the items are pretty self explanatory.
Or, are they?
I’ve only worked with a few people who paid cash for their franchises.
Most people-even high-net-worth individuals, leverage their money…use other people’s money. You may want to also.
And, even though it’s not as easy to get a franchise business loan as it once was, in most cases, it can be done.
Today’s lenders want to see:
A. Good credit
B. A generous down payment
C. Low debt
If your credit is just average-or below average, it will be more difficult to get funding. You may have to put in 50% of more of your own money in order to get a loan. And if your credit history is really bad, you may not be able to secure a loan at all.
Speaking of loans, most of the loans I see these days are loans that are backed by the Small Business Administration (SBA).
However: The SBA does not loan money. They guarantee loans that SBA Approved banks dole out.
But if you don’t want a traditional small business loan for your franchise, there may be another way.
Have you thought doing this to obtain a franchise loan?
One More Way To Get A Franchising Loan: Have Your Rich Uncle Loan You The Money!
How about asking Uncle Norbert for some money?
If you’re tempted to go to “Uncle Norbert” for a franchise loan, be prepared for some awkward moments.
Fact: There’s a massive difference between thinking about asking a family member for a business loan, and actually asking a family member—say good, old Uncle Norbert-for a loan. It will probably be a little uncomfortable.
“Remember when you said that if I ever found a great business opportunity to let you know and that you’d be open to lending me some money towards it? Well, I think I’ve found one! It’s right up my alley, and I would only need around $100,000 or so get it started. Could you loan me the money?”
Uncle Norbert will probably start asking you a few questions at this point. Make sure you’re ready for them. And, you know that there is only one way to to be ready.
Do amazing franchise research.
Then, brush up on your selling skills. You’re going to need them.
That’s because you’re going to have to be very convincing.
Tip: If you really want to impress your uncle, bring a completed business plan to the meeting. He’ll be blown away.
And, speaking of business plans…
You’re Going To Need A Business Plan
By and large, the one thing that can greatly increase your chances of getting your franchise business loan approved is a business plan. A formal one. A comprehensive one.
With this in mind, I asked Tim Berry, the father of the modern business plan, to write about this topic for inclusion in my franchise book:
“When a bank asks for a business plan, the bank wants a document that’s a convenient summary of the key points of the business. That includes highlights like what you sell, into what markets, through what channels, with what sales and marketing strategies. Also who’s in charge of this business, and what experience the people in the team have.”
The 7 Items Needed On A Business Plan
1. Executive Summary-features the highlights of your plan and sells your idea in two pages or less.
2. Company Summary-a factual description of your company, ownership, and history.
3. Products (or Services or both)-describes your products and/or services and how they stand out from competitive products and services.
4. Market Analysis-provides a summary of your typical customers, competitive landscape, market size, and expected market growth.
5. Strategy and Implementation-describes how you will sell your product, how you will put your plan into action, and establishes milestones.
6. Management Summary-provides background on the management team, their experiences, and key accomplishments.
7. Financial Plan-contains key financials including sales, cash flow, and profits.
So, now that you know the basics of what needs to be included in a franchise business plan, what should you do next?
You need to check out the world’s top-selling business plan software. It will really help you put together a powerful business plan for your franchise.
By the way, I’ve been an affiliate for Tim’s software for years. The software rocks.
The bottom line here?
You really will need a business plan for your franchise if you’re planning on applying for a loan….and getting it approved.
Click the image above to learn all about LivePlan. I’m an affiliate
In order to get invited to franchise headquarters for what’s called a Discovery Day
, your franchise development representative will need to feel confident that you’re ready to pull the trigger-or are really, really close to doing so. Only serious candidates get invited up to headquarters. So, don’t travel to headquarters unless you are serious.
FYI: It’s going to cost you some money to travel to headquarters, although some franchisors will pick up some or all of the tab if you do decide to become a franchisee. It’s nice gesture on their part, so take them up on it. And, bring your spouse-or partner with you. Let them see the operation with their own two eyes.
Now, as I said, attending a Discovery Day allows you to see the franchise operation in action. You’ll get a tour of the facility and you’ll have a chance to spend time in all the different departments. You’ll also get to meet the executive team.You may even get to visit one or two franchises that are located in the vicinity of headquarters.
Note: The Discovery Day, while exciting and informative, will slap you into reality.
That’s because everything you’ve been doing up to now has been from afar. The calls you’ve been making to franchisees, lenders-and to your franchise development representative have taken place from the safety and comfort of your own home. You haven’t really had to commit to anything.
Attending A Discovery Day Changes Everything
It really will change everything. It’s the whole “face-to-face” thing. It’s knowing that you could be writing a big check soon. It’s knowing that the “security” of a job…of being an employee, may soon be gone. But, that’s a good thing. You do want to “be the boss,” right?
The first thing you’ll notice is a change in how your franchise representative interacts with you. That’s because your representative-the salesperson, knows it’s getting close to crunch time for you and a possible “sale” for him. But, there are two decisions that need to be made before that happens.
1. The first decision will come from the executive team.
After your Discovery Day, the executive team gets together to discuss whether or not they feel you would make a good franchisee. If they feel you’re a good fit for their system, they’ll award you a franchise…a license. You’ll get a call from your representative, and the contract will be sent to you for review.
2. The second decision will be yours.
That’s right. It’s time for you to decide.
Remember: I told you that you should only attend a Discovery Day if you were serious.
This is why. A decision is now expected of you.
Things tend to move really fast after Discovery Day.
If you’re leaning towards a YES decision…
The franchise contract needs to be looked at by your franchise attorney.
If you haven’t applied for a small business loan, now’s the time.
It’s time for you to have a sit-down with your spouse or partner.
And you need to start scouting out locations (Unless you’re looking at a home-based franchise)
Note: In addition, you’ll need to setup the right entity for your business. Use Corpnet. I’m an affiliate.
(A nice franchise location. Maybe.)
Did you notice that I didn’t write a section on “location” in this article on how to buy a franchise?
The reason I didn’t go into location is because finding a location for your franchise business isn’t a priority. Not until you’ve decided on a specific franchise. And, not until you’ve decided to actually become an Owner.
More About Your Franchise Location
Now, I’m sure you’ve heard that, “location, location, location,” is the key to a successful franchise business operation, and it’s true. Well, it’s partly true. Your location is only one aspect of a successful franchise business. Others include little things like choosing the right franchise, doing great research, getting the right type of loan, and making sure you’re protected legally.
- Choose the wrong franchise
- Do lousy research
- Secure the wrong type of small business loan
- Decide to not hire a franchise attorney
Your location won’t matter too much.
Location Assistance From Your Franchisor
In addition, it’s important for you to know that you’re going to get help securing your franchise location from the franchisor.
Now, before you start worrying that the franchisor may choose a lousy location…ask yourself why the franchisor would want to do that.
Seriously: Why would a franchisor want to choose a weak location for a new franchisee?
Doesn’t the franchisor receive royalties from it’s franchisees?
Doesn’t the franchisor want to receive big royalty checks from it’s franchisees?
And, since the royalty checks are based on sales revenue…the higher the sales, the bigger the royalty check, don’t you think your franchisor wants to help you find a rockin’ location for your business?
With this in mind, try not to be worried about your potential location. Trust the franchisor to help find the best location available. You both have to sign-off on it, anyway.
It’s time for a decision…and it’s a big one.
But, I can’t tell you which way to go.
That’s because it’s not my money…my life.
It’s your money and your life. It’s up to you.
And, if you’ve read this entire article on how to buy a franchise, and have utilized all the things I’ve suggested, you’re way ahead of most people buying a franchise these days.
I’m talking about people who are looking to finally take control of their careers-of their lives.
People like you.
Franchises Don’t Come With A Money-Back Guarantee
Think about it: If franchises came with a money-back guarantee, more people would buy them. But, they don’t. (My franchise consultations do.)
Franchise Success Tip:If you’d like to work with me 1-on-1 as you search for a franchise to buy, my Franchise Ownership Consultations come with a 100% money-back guarantee. Plus, if you work* with me, you’ll sleep better at night because you’ll know in your heart that you’ve done things right.
*I want you to know that I’ve worked with NASA rocket scientists, Wall Street executives, ex-company CEO’s, teachers, military veterans…all sorts of people. I’d like to work with you, too.
Let’s figure this out together.
So you can be your own boss.
When you think of it, there’s really no reason for you to do this alone.
“When you begin exploring franchising, there is an ocean of possibilities and pitfalls. Joel Libava helps you avoid the pitfalls and navigate the possibilities with clarity and focus. His eBook, “The Definitive Guide to Franchise Research” saved me not only money, but also months of heartache and misdirection with its guided research techniques and list of specific questions to ask franchise development representatives and franchisees. In addition, Joel’s 1-on-1 consulting is invaluable for anyone considering or in conversation about buying a franchise.”
– Paul Goldsmith, Nashville
Maybe I can help you with your dream, too.