Investing in a business often involves a level of risk. But when you partner with a franchisor with a proven business model, you can feel more confident in your investment. If you’re curious about how to invest in a franchise and what owning one involves, exploring the process can help you decide if it’s the right move for you. By learning more about the cost, time investment, startup process, and how to pick the right franchisor, you can make a smart investment and launch a successful business.
How to Invest in a Franchise
Here’s a basic guide for starting a franchise as an investment opportunity:
1. Understand the Franchise Model
Before investing in a franchise, make sure you understand how franchising works. Starting this type of venture isn’t a hands-off investment where you pay an initial sum and wait to profit; you need to be actively involved in the process of starting your franchise and managing the business.
The process entails paying a franchisee fee and other startup costs in exchange for access to the franchisor’s business model, marketing materials, and intellectual property. You can then operate your own branch under the parent company’s name and use some of its resources and tools to support your operations. Because you’re using a proven business model that’s already been successful and you have access to the company’s reputation, this can help increase the chances of your branch being financially successful.
2. Research the Industry
There are many different types of franchising opportunities, from fast food chains to insurance companies. Research the options available to determine which ones provide you with the greatest potential to start a successful business. Here are a few tips to use when deciding if a franchisor is providing a good investment opportunity:
- Franchisee support: You want to work with a company that’s known for providing extensive training, resources, and support to its franchisees.
- Territory management: Look for franchisors that help you choose a market-ready territory where your business is likely to thrive.
- Brand reputation: Find testimonials from other franchisees and their customers to learn about the general reputation of the franchisor.
3. Determine Your Qualifications
Just as you want the franchisor to meet your standards as an investor, franchisors often have requirements for their franchisees. This can include financial requirements, such as a certain amount of startup capital, or other conditions, such as prior experience owning a business. Ensure that you’re prepared to meet the qualifications for any franchisor you want to partner with.
4. Assess Your Level of Involvement
Being an investor can involve different levels of engagement and involvement. When you invest in a franchise, you’re essentially starting your own business; even though you have support from the franchisor, you’re still responsible for the success of your branch. If you want to provide the financial backing for a franchise but aren’t interested in the day-to-day management of the business, consider working with a business partner or finding a strong manager to oversee your operations.
5. Prepare Your Finances
Like any investment, starting a branch requires starting capital that you can use to grow the business. You may wonder, ‘How much does it cost to start a franchise?’ Ultimately, it can vary, but total startup costs often sit in the range of $100,000 to $300,000. They can also be much cheaper or much more expensive, depending on the type of business. Your initial investment typically includes costs such as:
- The franchisee fee
- Real estate costs
- Training
- Insurance
- Marketing fees
Save up enough money to sustain yourself and the business for the initial startup phase. It takes time for a company to become profitable, so this gives your investment a chance to get off the ground. If you don’t have enough working capital right away, you can also take out a business loan.
6. Select a Location
Where you choose to start your franchise can have a significant impact on its success. You want to find an area with a high demand for your products or services, plus real estate that you can afford for your storefront. Quality franchisors often help you with market research to choose the best location for your business. They may even have a list of available, pre-approved territories and locations for you to choose from.
7. Review the Franchise Agreement
Once you’ve picked a franchisor and prepared your resources, it’s time to sign the paperwork. Thoroughly review the franchise agreement to make sure you understand your obligations and rights. This agreement goes over how you can use the franchisor’s intellectual property, explains any ongoing fees, and shares stipulations for how you can operate the business. It should also mention potential exit strategies if you ever want to cash out your investment and sell the franchise.
8. Build Your Customer Base
After you set up your storefront and open your doors, focus on finding customers and increasing sales. You can typically use the franchisor’s marketing materials and strategies to help bring in customers, and you may also be able to implement your own promotional techniques. By quickly bringing in a loyal base of customers, you can maximize your profit and start enjoying the benefits of your initial investment.
9. Consider Expanding
Once your franchise becomes profitable, you can consider scaling by opening another location. Many franchisees own multiple branches of the same company, allowing them to get more use out of their successful business model. Though this does involve increasing your investment, it can greatly increase your potential profit. When investing in multiple locations, be sure to focus on hiring competent managers who can help you with your daily operations.
Make a Smart Investment With the Right Franchisor
Once you understand how to invest in a franchise, you open up a world of opportunity as a business owner. By partnering with Freeway Franchise, you gain access to a proven business model and valuable guidance for getting the maximum return on your investment. If you’re curious about investing with Freeway, reach out online or call us at (877) 822-3024.
