How to start a franchise business in Las Vegas, you ask?
Getting on a bandwagon by franchising a business is easier as opposed to starting one’s own by building everything from the ground up due to the convenience and the potential it offers that includes:
Ease of access in securing finance based on a proven track record
Higher rate of success compared to a start-up due to brand equity
Operational and Marketing Support due to organized advertising paid by the Franchisor
However, having a franchise with the above-mentioned benefits does not exactly mean that it is free of problems or challenges. Some disadvantages of buying a franchise are as follows:
Entering a formal agreement with the franchisor who dictates how you run the business leaving little or no room for your creativity.
Loss of business may ensue due to a bad reputation from another franchise
The franchisor would have an ongoing share with your profit
High start-up costs while profits aren’t guaranteed
Some Factors To Consider
Given the facts concerning the advantages and the disadvantages of franchising a business, one has to think about the following factors before deciding on a franchise:
Demand. Be sure to check the demand for the company’s product or services as well as its franchising track record.
Investment. Based on the franchising fee, calculate how long it would take for you to get your return on investment.
Competition. If the business you intend for a franchise is a well-known brand, count the possibility that competition will be intense and difficult due to other franchisees and rival companies.
Training. One of the major advantages that franchising offers is the training and support they give to franchisees. Make sure that the franchisor provides continuous support.
Limitations. As a franchisee, you are the head of your “franchise” but the franchisor sets the standards that cover prices, products, operational hours, store designs, and other important aspects of the business.
So to answer the question, “How to start a franchise business,” here are the steps.
Franchising has a huge upside potential to earn money with the advantages it offers but it isn’t a guarantee due to uncontrollable factors that might lead you to second-guess your decision. In this case, consider the importance of evaluating yourself in line with the “Hedgehog Concept” by Jim Collins to answer the following questions:
Is this business something that you are passionate about?
Are you skilled at it?
Is this something that will economically work for you?
It would also be helpful if you learn more about the ins and outs of the business you intend to franchise so you will know and have a better understanding in order to come up with an informed decision before you enter into an agreement. Remember, as a franchise you don’t have a free hand on how to run things. Rather, you have to implement and adhere to the standards set by the franchisor. You may also try any of the following techniques in evaluating yourself:
Before finalizing your decision to start a franchise, see to it that you thoroughly research and evaluate the earning potential of the business and its associated risks. Make sure that you validate the demand for the product or the service by collecting and analyzing marketing trends in order to come up with an informed decision in franchising a business by conducting the following:
Talk to customers, suppliers, employees working in the industry, competitors, current franchisees, and industry experts as well as attorneys and accountants to Conduct An Industry Analysis.
Check the potential demand and the number of customers to sustain your business by Conducting A Market Analysis and review the 4P’s of marketing (product, price, place, and promotion).
Give attention to the details shown in your market research by Reviewing the Data and Drawing Conclusions to help in your decision.
Here are other sources where you can check and search for information regarding businesses that are open for franchising:
Franchising a business comes with an upfront franchise fee as part of the financial requirements by a Franchisor. Before you approach a franchisor, make sure that you have the available resources for the following costs:
Legal and Accounting Fees
Build-Out Costs (includes furniture, fixtures, equipment, and signage)
Supplies and Inventory
Travel and Living Expenses (While you undergo training)
In case your resources aren’t enough to cover these expenses, make sure that you come up with a business plan. That should include all important details of the business you intend to franchise to show the investors and banks the viability of your franchise. You can use money from your retirement fund to invest in your franchise without worrying about withdrawal penalties or taxes via a Rollover for Business Startups (ROBS). an may also source your funding from Small Business Association (SBA) which offers lower-risks compared to traditional loans, and it is partially guaranteed by the government. Here are your options under SBA loan:
Financial Statements (Balance sheet, Income Statement, Statement of cash flows)
Income Statements or P&L Statements (Revenues, Expenses, Profits)
Cash deposit and payment records
Bank loans and Lines of Credit
Minutes of Directors’ Meeting
Audit Paper files
Intellectual assets of the business (trademarks and patents)
Seller’s claims about the business (Reasons for selling the business and its reputation)
Privacy details (Includes information about customers, trading partners, employees)
Details about equipment, fixtures, vehicles, plant (Is it licensed? In a good working condition?)
Existing Contracts with clients and employees
Agreements (Partnership and Lease)
Details of the automated financial systems of the business
Credit and historical details of searches about the business
Legitimate franchises would be responsible and more than willing to share the above-mentioned details. Otherwise, you should be concerned if they show signs of being reluctant to disclose the above-mentioned information. Moreover, you should be concerned with the following signs:
Non-disclosure of important information as previously mentioned (Financial and Income statements, seller’s claims about the business, licenses, and permits, etc.)
Non-agreement to conduct due diligence
Questionable credit record and history
Eagerness to close the deal
Involved in legal issues
NOTE: Due Diligence is done by both the franchisor and the franchisee. The franchisor does their part to conduct due diligence and vetting of the franchisee while the franchisee does its due diligence of the franchise. Unless you have considerable knowledge, background, or experience concerning the legal and accounting aspects of franchising, enlisting the help of a professional would be of great help to avoid common mistakes and prevent entering an exploitative contract.
Sign the Franchise Agreement
Being confident of the steps you have taken with a well-prepared business plan and meeting the requirements of the franchisor for you to operate a franchise, you may go ahead and sign the franchise agreement. Make it your responsibility to clarify anything that raises a concern as everything that is specified in the agreement should be clear between you (franchisee) and the franchisor. In case you have employed the services of a lawyer and or an accountant, make sure that they thoroughly review everything that is stipulated in the agreement before affixing your signature as the saying goes, “leave no stone unturned” in checking the following clauses
Term & Renewal
Advertising & Marketing
Attend the Franchiser's Training
As a new owner, you are required to undergo training in preparation to run your own franchise based on the standards set by the franchisor. The training could take days or even months, depending on the business. Franchise Training Programs will further equip you with the knowledge and skills that you need in running the franchise that includes:
Hiring and Managing Employees
Administrative tasks: Filing of Permits, Bookkeeping, and Creating Reports
Details and specifics of the training program in terms of the duration, type of training, subjects covered, and the trainer will all be included in the Franchise Disclosure Document (FDD)
Prepare to Launch Your Franchise Business
Now that everything is set in place, finally you are at the culminating point of realizing your hard work, effort, and dedication to run your own franchise. Prior to your opening day, make sure that you carry out the following tasks: