Many entrepreneurs put themselves on the fast track by purchasing a franchise – a recognized brand that already has a reputation. You don’t start on the bottom rung, but you don’t run your business without input from the franchisor, either. There are rules – sometimes a whole book of them.

The quintessential franchise, McDonald’s restaurants, maintains a rigorous training program at Hamburger University.1 Store managers learn to do it the MacDonald’s way – everything from cook times to how often the parking lot is policed for trash – and who can argue with success?

That’s why the McDonald’s Corporation expects a franchisee to have a minimum of $500,000 of capital2 before applying to purchase a franchise. Costs for a high-end McDonald’s, built from scratch, can cost up to $2.3 million, depending on what needs to be done to create a profitable business with a brand people know the day you open the doors to your new outlet.

Other franchises are less expensive, but buying a franchise with a well-known company is never cheap. Considering the cost and the long-term commitment involved in owning a franchise, it’s important to do your homework and research the opportunity before making this important decision. Here are some things to consider.

Choose the right business for your skills and objectives. When weighing franchise opportunities, before signing up, give some thought to whether you’d enjoy selling that product for the next 30 years. Find the right fit for your skills and interests. If you’re a vegetarian, a hamburger place may not be best for you. Enjoy DIY projects and tinkering in your workshop? A hardware store might be a good choice. 

Look for a franchise that supports you but doesn’t control you.

When you buy a franchise, you’re buying the operational systems that have delivered business success to other franchisees. Look for a franchise that works with you to develop localized, targeted marketing.

A good franchise provides all the tools – the building, the signage, the booths and counters and registers, the training, the rules, marketing support – everything you need to succeed without the home office dictating a cookie-cutter approach to delivery of services or products. If grits are popular where your fast food restaurant is situated, you want to work with a business that understands that grits will sell in your location, but not so much in Maine where grits aren’t a staple.

Look for a partner in your franchisor. Look for a company that shares your values and methodology, whether marketing products or delivering services. You’ll have to get along with corporate, but you’ll also be better off sooner by listening to what works and what doesn’t.

Create a business plan. You’ll spend a lot of capital buying a national brand franchise. Where’s the money coming from? What’s its planned use?  Your franchisor is an excellent resource during this phase of business development. They can provide estimates of how much income a typical franchise in your area will bring in each month, and how much you’re likely to pay in expenses so you can plan for the future and create a realistic budget.

Find financial support. You may need financing for the down payment to purchase your franchise. Nevada State Bank is a Preferred Small Business Administration (SBA) Lender. The SBA has a directory of franchises that have met their requirements and for which the SBA offers a streamlined loan application process. All businesses (franchise or not) need the support of a banker who understands their needs and can provide financial solutions to help with cash flow and day-to-day banking operations. Nevada State Bank has been helping local businesses since 1959. Contact one of our bankers to help you with your franchise business. https://www.nsbank.com/contact_us/index.jsp

1. http://www.aboutmcdonalds.com/mcd/corporate_careers/training_and_development/hamburger_university.html
2. http://www.businessinsider.com/what-it-costs-to-open-a-mcdonalds-2014-11

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.