While franchising provides multiple benefits for prospective business owners, the business model is not for everyone. Budding entrepreneurs are encouraged to do a deeper dive to see if purchasing a franchise is a good fit for them.
Financial opportunities are promising. The International Franchise Association (IFA) predicts unprecedented annual growth in U.S. franchise establishments. Growth predictions for 2021 foresee the following:
- More than 800,000 jobs with 8.3 million in total
- A total of 26,000 new franchise businesses
- Nearly 80,000 total franchise establishments
A productive and mutually beneficial relationship between a franchisee and franchisor is paramount and the most essential part of their respective paths to success. Each franchisor will require a certain level of commitment considered above and beyond the typical business partnership. Requirements range from past working experience with the brand to a certain lifestyle. Due diligence by the franchisee is paramount in those situations, starting with reading the franchise disclosure document (FDD) with attention to every detail.
Personal net worth
Many franchises provide detailed information – via the FDD – on what is required for personal net worth or liquid assets, not counting the additional costs associated with launching a franchise operation that include:
- Fees for initial licensing, royalties, advertising/marketing, including local promotions
- Equipment, fit-out, and construction expenses
- Food, labor, product distribution, and other ongoing costs of doing business
Selection of a broker
Location requirements exist as well, and franchisors provide detailed information on that important aspect of opening a franchise. The selection of a commercial real estate broker should focus on a professional who exclusively works with tenants and possesses the same goals with both franchisee and franchisor, has in-depth knowledge of the retail industry, and tailors recommendations in line with the franchisor’s requirements.
Financial commitments are only the beginning. Personal commitments and sweat equity help to overcome the challenges that come with any type of business venture.
*NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.