Tips to Help Fund and Operate a Franchise Business

For many professionals, the thought of starting and operating their own small business can bring with it both excitement and anxiety as they navigate the process of structuring, building and funding the business.

One of just many options for consideration: franchising.

As a franchisee, you’re granted rights to operate the business using the branding, products and structure of the franchisor. This can provide upfront support in the way of brand recognition, training, marketing and operational support from the franchisor, and a proven business model to hit the ground running.

Here are tips and considerations for evaluating if operating a franchise could be the right move for you.

Select Your Franchise

Deciding which type of franchise you want to operate is just one of the many decisions you will need to make. Franchisors have a set of criteria the franchisee will need to meet to ensure they’re properly prepared to manage the business and maintain brand standards. These criteria can include your net worth, liquid assets, previous experience, education and certifications, site location, and more.

It is important to do your homework up front to help you narrow down which franchise options you will qualify for that are a fit for your goals.

Identify Funding Needs

Owning and operating any business will come with funding needs. But for franchisees, they will need to be prepared to pay the initial franchise fee to gain rights to use the brand in addition to having the funds to get the business operational.

Using only your personal savings for startup funds can bring high risk for your finances and potentially strain your personal and business cash flow. Working with a co-owner/investor can be a way to reduce this personal financial risk slightly, but also has tradeoffs.

If you don’t have the personal funds to get your franchise started, the U.S. Small Business Administration (SBA) offers loans designed to start or expand businesses. The SBA sets guidelines that can help reduce lender risk, which helps make these loans more accessible for new businesses. An SBA 7(a) loan is one good option that can provide up to $5 million and requires low cash investments, provides long repayment terms (10-25 years) and is backed by the government.

Speaking with your lender, accountant, attorney and other business advisors can be a good way to evaluate the franchisor’s requirements and put a plan in place for meeting those thresholds and funding the business.

Operating Your Successful Franchise

Once you have your funding in place and are an approved franchisee, the real fun begins. You’ll need to select the right location for your franchise – the franchisor will typically have a say in this.

Once your location is set and built, you’ll also need to hire and train your staff, manage your inventory and cash flow, and more. Using inventory management systems can help streamline operations, while building strong relationships with your vendors can also help provide negotiation leverage on rates and lead to improved supplier performance.

You will also want to have a marketing strategy in place for the launch of the business. Leverage the franchisor’s marketing resources where possible and work to build relationships with your customer-base. Social media can be a great tool for small businesses to advertise, and running promotions or contests can be a way to help draw attention to your new franchise.

Funding and operating a franchise requires careful planning and execution. By working closely with your franchisor to provide regular updates and gain their advice as well as with your business advisors, you can stay updated on the latest market trends and help set your franchise on the path to success.

If you need more assistance evaluating your franchise and funding options, consider speaking with your local banker as well as your other advisors, such as your accountant and attorney, to help build a roadmap.