When entrepreneurs dream about their future, franchising is rarely the starting place for their fantasy. While it's not always choice No. 1, the benefits of franchising make it an enticing career opportunity for entrepreneurs. With an established brand and support system, franchises offer franchisees a chance to taste running a business while also giving them significant help.
"A franchise is a business with training wheels," said Tom Scarda, founder of The Franchise Academy, a podcast dedicated to franchising. "For a majority of franchisees, franchising has proven to be a viable way to become a business owner. For the most part, it offers the lowest risks and the highest level of support. Because a franchiser doesn't succeed until the franchisees do, you'll find a team of dedicated professionals willing and able to help you every step of the way, from site selection to employee hiring to grand opening."
A company that sells rights to its existing business model and products to another businessperson or company is creating a franchise. The exact definition, however, varies because of the numerous statutes passed by the Federal Trade Commission and individual states.
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Federal regulations exist to protect the rights of both the franchisee and the franchiser. The FTC helps to oversee and enforce franchise laws to ensure that entrepreneurs receive full disclosure on the state of the business they are joining and that the franchiser's brand is protected. [See related story: Should You Be a Franchisee? 5 Questions to Ask]
Early in the franchise purchasing process, franchisers must provide a franchise disclosure document (FDD) to the potential franchisee. Sometimes called an offering circular, the FDD outlines the fees, investments, and bankruptcy and litigation history of the franchiser company. There are also registration and relationship laws that govern the registration of the franchise, salespeople and advertising, as well as grounds for terminating a franchise, notice and cure periods, grounds for nonrenewal, and equal treatment. These vary by state.
Factors to consider
Franchising requires a significant financial investment in return for the benefits it gives entrepreneurs. After paying the initial fee, the franchisee can begin setting up the business premises to sell products under the franchise's brand name.
Before launching the business, the franchisee is expected to propose a store location, business model, business opportunities and royalties. Once the terms of the franchise contract are agreed upon, the entrepreneur can begin setting up the storefront. All those activities require an additional investment of money and time.
While the appeal of the franchise is an established name and branding, it may limit your business autonomy – that is, the ability to move and grow your business in different directions to take advantage of local business factors.
It's important to find a business with a sustainable business model and a track record of success. Make sure to research where the company stands before joining as a franchisee. Rob Holt, the founder of Two Maids & a Mop, said his franchise underwent growing pains when initially transitioning from a traditional corporation to a franchise.
"In 2013, we only opened one franchise," he said. "In 2014, we opened one as well. We didn't really start growing until 2015, but during those first two years of franchising, even though we only had two, we really tried to perfect what we were doing."
It's important to understand the parent company's current state. The first franchisees for Two Maids & a Mop were willing to remain patient as the company experienced growing pains, whereas today's Two Maids & a Mop franchisees are joining a more established business. Neither option is right or wrong, but it's important to know what situation you're getting yourself into before spending the time and money to open a franchise. [There are more factors to consider. Read this related Business News Daily article.]
Benefits of franchising
One of the biggest benefits of franchising is drawing off the experience and expertise of the entire organization. By joining an accomplished brand, you bypass many of the hardships in building a company from the ground up.
"Franchising takes the guesswork out of starting a business," said Jonathan Barnett, founder and CEO of Oxi Fresh Carpet Cleaning. "They have established systems designed to give new franchisees a massive head start over competitors. On top of that, franchisees benefit from the power of an established brand. It's hard to overstate the advantage of starting a business and having people know and trust your brand from day one."
These are some specific benefits of franchising:
- Perks of the particular brand (e.g., training and discounts)
- Business model with a proven record of success
- Easier access to money and loans
- Low risk for banking institutions
Opportunities to watch
Nearly every industry has a successful business practice being sold as a franchise, from retail stores to employment services. Finding the right opportunity for you depends largely on your previous expertise and passion.
Based on our research of top franchising opportunity lists from around the web, we've identified 10 industries where franchise business is booming:
1. Children's enrichment. Parents want the best for their children, and educational franchises such as Kumon, The Goddard School and The Little Gym are helping the next generation learn and grow.
2. Hair salons. Hair care for men, women and children is a consistently in-demand service. Companies such as Supercuts, Sport Clips and Great Clips allow franchisees to stand out with a recognized brand name, while kids-only concepts like Snip-its give owners the opportunity to narrow their target market.
3. Fitness. While large gyms like Crunch and Retro Fitness are going strong, selecting a niche that's missing in your area, such as kickboxing or Pilates, can help you stand out.
4. Paint-and-sip studios. This entertaining concept, which allows participants to have a glass of wine while they take a group painting class, is growing fast for both new and established companies, such as Painting with a Twist, Pinot's Palette, Paint Nite and Wine & Design.
5. Pizza. This is a staple of the franchise world, with competitors still finding new and innovative ways to put together a pie or slice. Domino's, Pizza Hut and Papa John's still rule the market, but concept franchises such as Kono Pizza and Project Pie offer a fresh take on this classic food.
6. Frozen yogurt. The froyo craze remains in force, with franchises like Menchie's, Yogurtland, Pinkberry and Red Mango continuing to grow.
7. Property management. Since 2008, the number of rental properties – and companies needed to manage them, like Real Property Management and Property Management Pros – has been on the rise, prompting growth and opportunity for those looking to fill that need.
8. Senior care. As more aging baby boomers require in-home or facility care, this field is evolving by offering services such as advocacy and placement. Franchise options include Caring Senior Service and BrightStar Care.
9. Spa and beauty services. Franchises such as Massage Envy, Hand and Stone, and European Wax Center are a part of the burgeoning self-care market. You can offer specialized treatments like waxing or massages or go for a full-service establishment with add-on services such as facials and threading.
10. Vending machines. Vending machines have been popular for decades, but the success of these models – and the variety of potential product offerings – has made franchising a viable option within the past few years, through companies including Fresh Healthy Vending and Healthier 4U Vending.
You can find further reading on how to buy a franchise and current opportunities on these websites:
Additional reporting by Sammi Caramela, Ryan Goodrich and Marci Martin.