In this Blog Post, I’m going to share with you the 10 Steps to Opening a Franchise.
Opening up a franchise or any small business can be daunting. There are hundreds of tasks that need to be completed most, within a certain time-frame. Risk increases with ignorance and to that end, its important to understand the big picture, the context of the entire sales and development processes. In this article I’ve outlined a high level overview of the how to open a franchise unit. Its important to note that this post is intended to be a road-map. The specific how-to’s for each task will be covered in a separate posts.
With just a few exceptions, this process can be used to open any small business.
Step 1 : Find a Franchise
That sounds easy enough but, it entails more than you think.
Task #1 : Conduct a Self Evaluation
Take a moment and think about your personal financial situation, your experience, your current lifestyle and most importantly, your why. Why you want to get into a franchise?
Task # 2 : Choose a Franchise Type
There are a lot of different franchise types out there. There’s restaurant franchises, entertainment franchises, franchises in health care, franchises in retail. Choosing that franchise type, based on that self evaluation, is really going to set you up for success.
Task #3 : Search for a Concept
We have a whole video on how to search for a concept, you can access that by clicking here.
Task #4 : Call Franchisors
Do yourself a big favor and make sure you are well educated about the concept for which you are calling. Nothing turns Franchisors off more than a Prospect that hasn’t done their due diligence. While your on the phone with them try to get a feel for the culture and find out if they have any requirements such as financial requirements. All franchises are going to have financial requirements, so go ahead and find those out while you’re on the phone with them.
Task 5 : Review the FDD
Understand that while you were on the phone with the Franchisor, their goal, if they’ve vetted you to a point, is to send you their FDD, their Franchise Disclosure Document. I’m going to cover the details of Franchise Disclosure Document in another blog post – it deserves a whole blog post unto itself.
Task #6 : Call the Franchisees
The Franchisor is probably going to give you a list, it may be within the FDD, of franchisees that they think are similar to your situation. Get yourself prepared with aforementioned due diligence and give the Franchisees a call. I recommend asking the Franchisor for an introduction as some Franchisees will be less open than others.
Step 2 : Financing Analysis
Task #1 : Request a P&L from the Franchisor
This step includes understanding the concepts’ profit and loss statement. When you’re on the phone with the Franchisor as we talked in Step 1, ask them if they can send you a copy of a P&L. If they provide you with a template, it will usually be expressed in terms of percentage, so you may not have exact numbers but, using the FDD and a P&L template, will cab get you far enough to understand the big picture. You will need to revisit this P&L when you write your business plan and before you sign the Franchise Agreement.
Task #2 : Investigate the Lender Requirements
Another task within financing analysis that I recommend, is to go and sit down with the bank. Understand your financing options before you get too far invested in the thought of this franchise.
Watch the Video Below:
Step 3 : Buying a Franchise
At this point you’ve done your self-evaluation, you’ve found a franchise that you liked, you’ve reviewed their documents, their FDD, you’ve talked to them, you’ve done extensive due diligence, etc. They’re likely going to invite you to attend a discovery day.
Task #1 : Attend Discovery Day
Discovery days are usually day long events where the Franchisor will invite you to their home office and they will explain the concept in detail to you. You’ll hear from all the major departments; Real estate, marketing, development, construction, operations. You’ll hear from all of those folks and they’ll tell you what owning and operating this franchise looks like.
Task #2 : Receive and Review the Franchise Agreement
After discovery day and the Franchisor’s evaluation of you and your evaluation of them, the next logical step is the franchise agreement. The franchise agreement is a contract between you and the Franchisor that details out all the requirements, all the obligations, all the monetary implications of you owning and operating that franchise.
Step 4 : Site Selection
I’ve done a whole video on site selection and I’m going to link that here. It talks about the 4 buckets of real estate and it kind of hones in on the basic principles of site selection.
Step 5 : Real Estate Transactions
There’s a lot to take in, in terms of real estate transactions. The first thing is, are you going to lease or are you going to buy or acquire the property. In most cases, Franchisees lease.
Task #1 : Understand Letters of Intent
With real estate goes along letters of intent and intense project scheduling.
Task #2 : Map out your Project Schedule
You want to make sure you make those deadlines. Understand and manage your project schedule.
Task #3 : Receive and Review your Lease Agreement
And of course, the lease agreement itself. Have a qualified real estate attorney, preferably one with franchise experience, review and provide comments to your lease. We’re going to go into more depth on the lease agreement in another post.
Step 6 : Plans Generation
So, you’ve signed your lease and now you’re ready to hire an architect and get going on the plans.
Task #1 : Hire an Architect
At this stage of the game you want to be in heavy contact with the Franchisor, because they are going to give you design requirements. Your architect is going to be responsible for implementing those design requirements into your plans. Generally speaking, plans generation takes anywhere from 30 to 45 days, depending on the complexity of the concept.
Understand that within the plans generation phase you may also be working with a civil engineer. You may also be working with an attorney. You may also be working with community boards such as planning and zoning. So be prepared to deal with all of those individuals.
Task #2 : Expect Comments from the Franchisor
The Franchisor also gets the opportunity to review your plans, make comments, just to make sure that your plans and how the unit is going to be built lines up with their brand standard.
Step 7 : Permitting
Task #1 : Submit for Permit
You enter into permitting as soon as the architect submits your plans for review to the agency having jurisdiction. That could be county, that could be city, could be health department, could be building department, it just depends on the municipality.
Task #2 : Submit for Bids
Simultaneously with submission to the agency having jurisdiction, the architect is also going to submit your plans for bid. And what that means is the architect is going to produce either a CD set or a hard copy set of the plans for general contractors that you’ve pre-chosen, pre-screened to review and place a bid. This is very important; you want to make sure that you at least get three bids from three different contractors. That’s important because you want to make sure that the price that you’re getting is a fair price, and that it’s market value.
Task #3 : Pull the Permit
Pulling that permit has some implications on its own that could be a hinge pin for your rent commence. We’ll cover that in a separate blog post.
Step 8 : Construction
As you can imagine, construction has a lot of moving parts and it’s your GC’s (General Contractor’s) responsibility to manage all of those moving parts.
Task #1 : Get a Construction Schedule from your GC
Before you get too far into the construction, you want to make sure that you get a construction schedule from the GC. That will help you manage that timeline so that you are meeting your commitments per your lease agreement and you’re also meeting those commitments that you made to the Franchisor.
Task #2 : Obtain the C/O
At the end of construction, you’re going to be issued a CO or a TCO. A CO is a certificate of occupancy, which means that the building department or the municipality in charge has said you’re good to go, you’ve fulfilled all the requirements of the permit and you’re ready for opening day. A TCO is a temporary certificate of occupancy and may allow you to start your training or initial inventory unloading, but please keep in mind with a TCO you are still responsible for obtaining the permanent CO.
Task #3 : Issue a Punch-list
At this time you’re also doing a punch-list. The contractor is going to do a walk-through with you and make sure that everything is done per your lease agreement and per your contract with them.
Step 9 : Grand Opening
You’ve made it to the home stretch! Your grand opening is where a lot of the Franchisor coordination comes into play. You’ve got the Marketing Department involved, you’ve got the Operations Team involved, you’ve got the Training Team involved. All of those different departments at the Franchisor’s office are coming to help you to make sure that you get open in the correct way and per the brand standard.
Task #1 : Coordinate your Friends and Family Event
The Friends and Family event is your soft opening, and it’s by invite only. You get to showcase your franchise unit to your friends and family.
That’s not only limited to your immediate friends and family, but all the people that helped you along the way. It could be you had really great broker. Invite them to the friends and family. You had a really great GC. Invite them. Make sure that this is a community event. If you do it the right way this could be a lot of positive exposure for you.
Step 10 : Facilities Maintenance
When you open the doors to your franchise, you’re going to be responsible for how the facility operates.
Task #1 : Keep your Paperwork
Be sure to keep those warranties on your equipment, on your roof, all of those things for which you paid. Make sure that you keep those documents organized, because as your unit ages, there’s going to be things that break, there’s going to be things that need replacement and you would be remiss if you didn’t cash in on those warranties that are available to you.
Task #2 : Expect Inspections
During the operating life of your franchise unit you’re going to have inspections. You’re going to have inspections by the health department. You’re going to have inspections by the Franchisor. Now, they’re going to come in and make sure you’re operating per their brand standards.
That wraps up the 10 steps to opening your own franchise. If you like this blog post, please share it with a friend who is interested in franchising or in small business. If you have any questions feel free to write those in the comments below. We are always happy to answer your questions.