Franchising offers unique benefits compared to starting a business from scratch, and it’s a great option for anyone seeking a path to business ownership. Not only is the franchise system an already proven business model, but the franchisor provides training and support that sets franchisees up for success.
While each franchise might have unique requirements, there are general expectations that most individuals will encounter when trying to buy a franchise.
Financial Requirements
The exact details will differ from franchise to franchise, but all franchises have financial requirements for prospective franchisees. These include:
- Initial Franchise Fee – The initial franchise fee is a one-time payment that a franchisee usually makes when signing the Franchise Agreement. It covers the right to operate a franchise under the established brand, giving access to the brand name, business model, support services, and other proprietary elements.
- Liquid Capital Needs – Liquid capital refers to the cash or assets you have on-hand that’s readily available to invest in a business (it’s not the money you need for daily life). Sufficient liquid capital allows franchisees to cover expenses and sustain the business until it becomes profitable.
- Net Worth Expectations – Net worth refers to an individual’s cash and assets minus their liabilities. Not only does a franchisee need enough capital to sustain the business until it is self-sufficient, but franchises also see net worth as a marker of financial stability.
- Ongoing Royalties and Fees – Franchise royalty fees are the ongoing expenses that go towards the maintenance of the franchise as a whole. Marketing fees typically support national franchise marketing efforts.
- Financing Options – An aspiring franchisee will need to be able to finance their franchise purchase. Common financing methods include personal savings, small business loans, and franchisor financing programs.
Personal Requirements
The personal requirements are not as tangible as the financial requirements, but they’re important nevertheless. A franchisor will want to see the following in a prospective franchisee:
- Entrepreneurial Drive – A franchise owner needs to be motivated, committed, and resilient to the various stresses that come with owning a business.
- Skills and Experience – While prior experience in the industry isn’t always mandatory, leadership and management skills are highly valued.
- Passion for the Brand – Being able to align with the franchisor’s mission and values is key to long-term success. People will go to great lengths to succeed when it’s something they’re passionate about.
- Time Commitment – Franchise ownership models range from full-time to semi-absentee and absentee. Each individual will need to choose a franchise that fits their lifestyle and respective time demands.
Required Education & Certifications
While there are several useful degrees for future business owners, a formal education isn’t always mandatory.
Various industry-specific certifications might be required such as food handling licenses, real estate certifications, childcare-related training, and more.
In many cases, franchisors will offer in-house training programs to ensure franchisees understand the operational, managerial, and industry-specific aspects.
Franchisees should take advantage of ongoing education opportunities—workshops, webinars, and franchise events—to stay competitive.
Legal & Operational Requirements
There are various legal documents and requirements that franchise owners will need to be aware of. These include:
- Understanding the Franchise Agreement – A franchise agreement is the contract between a franchisor and franchisee stipulating the terms of their business relationship and what is expected from each party. Franchise owners should review the agreement with a legal expert to ensure they understand all of the terms.
- Business Licensing and Permits – It’s important to obtain the required permits for operating, which will depend on your industry and location. The franchisor should be able to provide helpful guidance on this matter.
- Territorial Rights – In many cases, franchisors will grant exclusive territories to its franchisees, giving the sole right to operate and market the brand within that designated region.
- Initial Training and Support – Franchisors provide initial and ongoing training and support to set their franchisees up for success.
- Compliance with Brand Standards – The franchise model depends on the stipulation that each franchise location will maintain consistency in marketing, operations, and customer services. Compliance with this is not only outlined in the franchise agreement and thus required, but it is essential to success.
Thinking About Pursuing Franchise Ownership?
Are you interested in franchising? While there are general requirements you can expect, the specific requirements will vary depending on the industry, brand, and franchisor preferences. If you’re ready to get started, FranNet is here to help. Our expert franchise consultants can evaluate your skills and goals and match you with the perfect franchise opportunity. We’ll walk you through the process of joining that franchise from start to finish. Schedule your free consultation today!