Franchises for Sale

There are hundreds of successful brands offering franchises for sale to choose from. If you dream of becoming your own boss but don’t want to deal with the process and risk of launching a business from the ground up, franchising offers a great option for you. A franchise has an established brand that doesn’t require you to start from the ground up.

So how do you determine which franchise opportunities are right for you? First, it’s important to know what franchising entails.

What is Franchising?

Franchising is a contractual agreement between a business (the franchisor) and an individual or group (the franchisee) for the right to use an established business’s brand name and market its products or services.

The franchisor is the business or company that establishes the brand and operations system.

The franchisee is the individual or group who pays the franchisor a fee for the right to use the business name, marketing, operating systems, and products or services.

Walk into any Subway sandwich shop, and you are in a franchise business. The shop is owned by a franchisee who paid Subway, the franchisor, for the right to open their location.

According to the International Franchise Association, there are two different types of franchising: business format and product distribution.

In a business format franchising relationship, the franchisee pays the franchisor a certain fee. In turn, the franchisee receives a license to open their location of an already established business.

Although the franchisee runs their location independently, the franchisor supports the franchisee in finding a location and providing the operating systems, training, marketing strategy, and more. The franchisor also maintains a continuing interest in the franchise.

This relationship benefits both parties. It enables the franchisee to own and operate an already established business at a lower cost than if they started their own business—the franchisor benefits by expanding into other locations without spending a lot of capital.

Product distribution franchising is a seller-dealer relationship where the franchisee receives the right to distribute another company’s product. They can operate on their terms, with minimal oversight from the franchisor. This kind of franchising is most common in gas stations, automobile services, and beverage distributors.

Is a Franchise Right for Me?

Not everyone has what it takes to be a franchisee. Franchisors look carefully at prospective franchisees to ensure certain characteristics such as motivation, managerial skills, confidence, organizational skills, and a customer-focused approach.

When determining whether a franchise is the right path for you, ask yourself the following questions:

Why do I want to own a franchise? 

Owning a franchise can be a very rewarding venture. As a franchise owner, you will work some long hours at first, but your hard work will pay off in future financial gains. With the support of the franchisor, you’ll also have an easier road to success in your business than trying to start a business from scratch.

If you are motivated and disciplined about working toward future success, then franchise ownership offers a great opportunity.

Do I want to be my own boss? 

Being in charge means making decisions, managing employees, and being responsible. If you are honest with yourself and believe that you possess these traits, then you’ll have a good future as a franchisee. But if you don’t like managing others or prefer to defer decisions to someone else, then a franchise is not a good fit.

Do I have enough money?

Start-up costs for a franchisee range between $75,000 and $500,000. This cost includes franchise fees, inventory, lease agreements, equipment, grand opening, marketing, and more. Plus, you should also have enough money in the bank to cover operating expenses until the business starts to make a profit, which could be six months to a year.

Can I follow procedures?

You should avoid franchising if you have a hard time following procedures or are a “my way or the highway” personality type. One of the best advantages of owning a franchise is that there is already a system in place to help you become successful. If you aren’t willing to abide by that system, then you should consider something other than franchising.

Am I a risk-taker?

Although a franchise may already be an established brand name, it still comes with some level of risk. Are you in a position to take on the risk? To find out some of the issues that may pop up along the way, ask other franchise owners about their experience. Ask them what they see as the pros and cons of the franchise.

It’s also a good idea to ask the franchisor about their business model and what they see as their franchisees' challenges and opportunities.

Am I a people person?

As a franchise owner, you work with people all the time. Whether you are training an employee or dealing with an angry customer, you need to know how to communicate with people to be a successful manager. If you lack people skills, then franchising is not for you.

Am I a team player? 

The success of your business is directly related to the team of people you hire to work there. Everyone on your team should be motivated to do the best they can. As a franchise owner, you’re the leader of that team, and you’re responsible for keeping their motivation up. It only takes one sour apple to spoil the whole bunch, so make sure they see you as part of the team.

Do I understand legal matters? 

Franchising is a legal process that involves a binding contract that you should read carefully so you know what you are getting into. So, if you have a low tolerance for studying legal documents, you might think twice about franchising.

The Advantages of Franchising

Starting your own business is a costly venture, and it can be hard to get off the ground.

The business is already established with a franchise, so much of the hard work is already done. Consumers are already familiar with the brand name and the products or services they can expect from the brand.

For example, if you decide to open a Dunkin’ franchise, there’s a good chance you’ll already have customers anticipating the day you open your doors.

Other advantages to franchising include:

Marketing and advertising guidance: Most franchisors have cooperative advertising initiatives to help you promote your location. In some cases, the company marketing department will either handle your local advertising or provide you with the materials you need. If the franchisor's brand name is well known, you can also benefit from the franchisor’s national campaigns.

Ongoing support: As a franchisee, you have access to support from the franchisor if you run into problems with your location.

Ongoing training: The franchisor provides ongoing training for you and your employees to make sure your location runs smoothly and is up to its standards.

Product discounts: Franchisees may also be able to take advantage of bulk discounts on supplies through the franchisor’s purchasing programs.

Selling the business: When it comes time to sell the business, some franchisors offer assistance in the process of finding a new buyer and transferring the title.

Choosing a Profitable Franchise

There are hundreds of franchises for sale in many different industries. The key is to choose the franchise opportunity that you’re not only passionate about but that will also be profitable.

First and foremost, you must believe in the franchise brand. Most franchises are designed to last at least ten years, so you must work with a brand you admire in an industry you are comfortable with.

A good way to start is by making a list of industries you’re interested in and the potential franchises available in those industries.

It’s a common misconception that the more popular franchises will be more profitable. Instead, focus on industries that might be missing in your market. For example, if your market has ten different pizza places but only one carpet cleaning business, opening a second carpet cleaning business may prove to be a better investment.

Where your franchise is located also has a significant impact on its profitability. Is there enough parking for customers? Does the location get a lot of foot or vehicle traffic? Do the surrounding businesses complement or compete with the franchise?

When evaluating the profitability of a franchise opportunity, you should investigate the company’s franchise disclosure document (FDD).

The FDD is a legal document given as part of pre-sale due diligence to individuals interested in buying a franchise. The document shows the costs, potential earnings, obligations, and other essential information about investing in a company’s franchise program. The information provided is based on data from existing locations.

Although franchisors aren’t required to provide earnings, or financial performance representations (FPRs), more are doing so. This information can give you a better picture of a franchise’s:

• Total sales
• Gross profit
• Personnel costs, including wages, employment taxes, and benefits
• Marketing costs for local advertising and marketing
• Facility costs, including rent, utilities, repair, and maintenance
• How long did it take for their business to see a profit?
• Is the franchisor supportive?
• Does the franchisor provide adequate marketing assistance?
• What are the royalty fees, if any?
• What do they wish they would have known about before they entered the relationship with the franchisor?

The FDD form also lists other franchisees you can reach out to about the success or struggles they have had. You can ask them:

You should also research the franchisor’s website to see if it has a link specifically for franchisee information.

An internet search of the company name will also provide any news stories on the company. Companies that are publicly traded have to provide earning reports to their investors. These reports can give you some insight into the financial stability of the company.

You can find out what customers think of the franchisor’s products or services by reading reviews on websites like Yelp and Google. Steer clear of franchisors with too many negative reviews.

When it comes down to it, the three common characteristics in a franchise to be profitable are:

1. A winning product or service
2. A stellar marketing plan
3. A commitment to the success of their franchisees

Questions for a Franchisor

Before you commit to moving forward with a franchise opportunity, it’s essential to talk with the franchisor to get as much information you can.

Here are a few important questions to ask a franchisor:

What is the total investment required to own a franchise? 

The cost of owning a franchise involves more than just the initial franchise fee you pay the franchisor. If you need to build a location, you’ll have expenses for that build-out. These build-out costs can include contractor fees, architectural drawings, and landscaping, as well as fixtures, furniture, and equipment. Find out if the franchisor helps pay for those costs or if you are responsible for all of them.

You should also find out if there are any ongoing fees that you’ll have to pay the franchisor. Do you have to pay royalty fees, which are a percentage of your sales? Will you have to pay for marketing done by or through the franchisor?

How involved is the franchisor?

Besides the initial training to get your franchise off the ground, how much support will the franchisor offer you? Will they assist you in your grand opening? How often will their field staff visit your location? Do they provide day-to-day support to help you?

Check to see if the franchise has an advisory board or council. These councils are comprised of existing franchisees. The council's role is to advise the franchisor on different matters affecting franchise owners and provide input on how to improve the system.

Does the franchisor provide sales leads or customers? 

If you are opening a restaurant franchise like Culver’s or Taco Bell, you won’t need sales leads for your business. But you will need them if you decide to open an Experian Cruiseship Center, Century 21, or Budget Blinds. Ask the franchisor if they have a program for you to get sales leads or if you are solely responsible for generating new customers.

Will you be competing with other franchises in your market? 

Although there could be several McDonald’s located in the same market, some franchises are more territorial. In other words, the franchisor may have one franchise serving a market. Service-based franchises like Servpro and Home Instead often have just one franchise servicing a specific territory.

What is the method used to protect franchisees from poorly performing franchises? 

It’s also important to find out from the franchisor what the success rate is for new franchises. A franchisor’s success relies heavily on the success of their franchisees. Does the franchisor have procedures in place if things don’t go according to plan leading to a franchise performing poorly?

Negotiating franchise agreement terms

When you are ready to move forward with a franchise agreement, remember that this is not a take-it-or-leave-it business deal. As a franchisee, you have the right to negotiate some of the terms of the agreement.

Franchise agreements are typically written to be used with multiple franchisees without writing a new agreement every time. The agreements can lean more favorable to franchisors, but most franchisors are willing to negotiate what’s in the agreement.

If there are restrictions in the agreement that you find unreasonable, talk to the franchisor to see if you can compromise on terms that would be more favorable.