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The Smartest Career Move of 2018 is Not A 9-5


As more and more large companies downsize, replacing their midlevel employees and managers with computers or outsourcing critical jobs to Asia and Eastern Europe, millions of Americans, many in their 40s and 50s, are scouring the internet looking for a new career. A career that gives them more freedom as well as more security. Many of these Americans are thinking seriously about buying a franchise.

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Why? Well, franchise ownership can be the perfect middle ground between a corporate 9-5 and owning your own small business. For one, franchises offer an increased degree of security over full-on business ownership, and also offer much more freedom than a typical 9-5. Peter Birkeland, author of Franchising Dreams: The Lure of Entrepreneurship in America, says it best, “you can be your own boss, you’re operating under a trademark that has instant brand recognition, and the failure rate for franchises is lower than it is for mom and pop businesses.”

Now is actually a great time to get into a franchise. To satisfy the sudden growing demand for franchises over the past decade in the U.S., hundreds of new franchises have been formed that offer owners the chance to work in an industry that they’re truly passionate about. Franchises are not limited to fast food anymore, now you can own an incredibly successful and recognizable franchise brand in any industry, such as education, home improvement, business services, sports, health and beauty, and much more.

In this article, you’ll learn exactly what a franchise is, how it operates, and how to properly choose and buy your own franchise.

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What exactly is a franchise?

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According to the Federal Trade Commission, a franchise enables you, the investor or franchisee, to operate a business. You pay a franchise fee and you get a format or system developed by the company (franchisor), the right to use the franchisor’s name for a specific number of years and assistance running the business. For example, the franchisor may provide you with help in finding a location for your outlet; initial training and an operating manual; and advice on management, marketing or personnel. The franchisor may provide support through periodic newsletters, a toll-free telephone number, a website or scheduled workshops or seminars.

In short, a franchise is an extension of an already successful business that has worked out all the kinks through multiple years in business, so all you need to do is open your doors and operate the business according to the franchise manual.

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Costs

In exchange for the right to use the franchisor’s name, operating manual, trademarks, advertising, etc., you will make an investment that is similar (but usually much lower) to starting your own business.

Initial Franchise Fee
The franchise fee can be thought of as the startup cost for your business. It’s a predefined fee that can range from a few thousand to several hundred thousand dollars depending on the size and scope of the franchise. Some of this fee might go towards your operating license, insurance, and grand opening to promote your new business.

Royalty Payments & Advertising Fees
Some franchises require ongoing royalty fees that are equal to a small percentage of your monthly gross income, or a fixed annual amount. You may also have to contribute to an advertising fund. This ensures that the franchisor can continue investing in the brand to make it better, and advertise the brand on your behalf so more customers come to your local franchise location.

Liquid Capital Required (also called Minimum Cash Required)
Franchisors will usually require a minimum amount of liquid capital, to ensure you can safely run the business. Liquid capital refers to cash on hand or other similar liquid assets (such as stocks, bonds, etc.).

Net Worth
Sometimes a minimum net worth will also be required. Net worth is simply your total assets minus your total liabilities.

Here are two examples of franchises and their respective costs below:

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How do you pay for a franchise?

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The good news is that very rarely do prospective franchise owners actually pay for all the franchise investment costs with their own money. Instead, banks and other types of lenders will loan you the money to get started, just the same as if you were starting your own business. The difference is that it’s actually easier in most cases to borrow money to start a franchise than to start your own business because franchises are generally much less risky; which lenders like.

There are a variety of financing options available to you, such as a traditional bank loan, SBA loan, line of credit, unsecured debt, etc. Every individual case is unique, and the right financing option for you depends on the amount of money you need, your credit score, credit history, net worth, etc. Like we mentioned before, however, getting financing for a franchise is usually easier than getting financing for a business startup.

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How to Find The Right Franchise

Since there are so many great franchise chains to choose from now, it may be overwhelming when you start looking at all of them. There’s actually a much easier way to find the perfect franchise, however, by simply answering the questions below:

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1. What industries are you interested in? What topics are you passionate about? What type of work gets you excited? What kind of experience do you have from previous work?

This will help you narrow down 1-3 industries you are interested in.

2. Are you willing to relocate, or would you like to stay at your current location?

This will determine whether to look for franchises in your city or open you up to new locations you may be interested in moving to.

3. Do you need a specific annual income from your business to support your family?

Depending on the franchise, you can earn just a few thousand dollars a month with a smaller franchise business (think of a coffee cart or a food truck that you can operate part-time), or do you need a full time income with a larger franchise that can provide you with six figures a year or more?

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4. Would you like to operate your franchise by yourself or would you like to have employees?

This will help determine what kind of franchise you need based on the number of employees required to run it.

5. How much money do you have currently and how much are you comfortable borrowing?

This will help determine the maximum total investment you are willing to make into your new franchise.

6. Will you be in business for yourself or will you have
partners?

Sometimes it might make sense for you to bring on partners that have complimentary skillsets to yours, other times you may just
want to be in business for yourself.

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How do you buy a franchise?

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Once you’ve found a franchise you are interested in, a franchise broker or franchise consultant can help you through the entire franchise buying process. One of the first steps is to review the Franchise Disclosure Document (FDD). The FDD is a very important document to review and familiarize yourself with before you decide to become a franchisee. It contains all the information on the franchise, a breakdown of all the up-front startup costs, everything the franchiser is obligated to provide for you, the amount of revenue you can expect to make, and more.

Once you’ve decided on a franchise, your broker will help you with all the documents, licenses, and franchise agreements that are required in your state. These will vary by state and franchise business, but don’t let this discourage you. Finding a good broker or consultant is key to making the process simple and easy.

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Next steps

Would you like to learn more about franchising? Excel has Franchising Specialists available to answer all your questions regarding how to choose, find, finance, buy, and market your franchise. You can get a free consultation with an Excel Franchise Specialist today, just fill out the form below and we’ll be in touch with you shortly!

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