Starting a small business franchise is a multi-step process that can require significant time, effort and money. The prospective business owner chooses a franchise operation with which to associate, lines up necessary financing, signs a franchise agreement, establishes a business location, trains staff and opens for business. Many small business franchise owners suggest an alternate first step, which is deciding that franchising is a personal and professional fit.
There is a small business franchise for a wide variety of retail and service industries. Fast food franchises range from multinational chains, such as McDonald’s®, to regional specialty sandwich shops. Service businesses often are lower-cost avenues to open a small business franchise, including janitorial and home cleaning businesses. The prospective small business franchise owner is usually advised to chose a franchise in which he or she has experience.
In addition to the initial franchise fee that can range greatly, there are the costs of buying, building or leasing a location; equipping the location; stocking initial inventory; hiring and training staff; paying initial legal fees, licenses and permits; and creating a capital reserve to cover costs before the business generates cash flow. The U.S. Small Business Administration estimates that half of new business fail in the first five years of operation because of insufficient capital. This means that if the small business franchise owner does not have sufficient cash, financing from traditional commercial lenders can be hard to come by as the loans often are considered risky. Many franchise operations offer financing for qualified borrowers to help new franchise owners get started.
The franchise agreement typically spells out what the franchise organization will provide, what the small business franchise owner is responsible for and what percent of ongoing revenue must be paid for the continuing privilege of operating the franchise. Usually, the higher the franchise fee and percent of revenue are, the more valuable the franchise brand and the higher the potential for profit should be. The ongoing support offered by the franchise organization should be reflected in the agreement as well.
In most instances, the franchise organization will help the small business franchise owner find a suitable location that usually must be renovated in accordance with predetermined specifications. Most franchise organizations offer training for prospective small business franchise owners, and some will offer help in the initial hiring and training of employees. Regardless of where the home office of the franchise organization is, the small business franchise owner must tailor business operations to comply with local regulations as well.