Starting a franchise takes away much of the pain of setting up a new business. Creating a business plan, carrying out market research, cutting through the red tape to license your new company; all of this is taken care of by the franchisor.
But there are still many things to consider in setting up your first franchise. If you?re considering starting a franchise business, there are a few things you should know beforehand.
Let?s dive in and take a look at some of the key considerations.
How Does a Franchise Business Work?
As a franchisee, you?re essentially paying the owner of the company a ?fee? to license the use of the brand. As the owner of your franchise, you?re responsible for the day to day running of the business (or at least hiring the people you need), but you must stick to the brand and the rules put in place by the owner of the company (the franchisor).
A classic example is Burger King. Most of their restaurants are franchises. This means that at some point an businessperson, or a business group, paid a large quantity of cash to Burger King for the right to use their brand, their menu, their logo, amongst other business assets which we?ll touch on later.
The location of the restaurant, and the physical space of the restaurant belongs to you, the franchisee.
This model is so popular because it gives you the best of both worlds:
- Your own business
- The support and strategy of an established brand
Here are some of the most successful franchises in Spain.
- 100 Montaditos
- Remax
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4 The benefits of setting up a franchise Business
Owning your own business gives you more control. You?re not answerable to others, and you can dedicate time to the things that you want to do. But being a franchise owner offers some more specific benefits. Here are some of them.
Lower investment in time and resources
For a business starting out, lots of time needs to be spent in testing and refining the business model. For a clothes store, the logistics, the store layout, and even the style can take a long time to get just right.
But with a franchise, you get all of this for free. The work has already been done to make sure that the products that sell best are already front and center of your store.
More chance of success
Franchise businesses have a lower rate of closure. You are opening your business having already had someone else do the hard graft. And you also have access to all of this knowledge and intelligence.
Greater Brand Value
Brand Value is an unknown metric amongst business owners. But marketers understand the importance of consumer trust. To build this takes a lot of time and invesment, not only in marketing but also in customer support and community management. With a franchise, you have a brand that has higher brand value and your customers will have more confidence in buying from you.
Buying Power Level 100
With the power of an established company behind you, negotiating is easier, offering better margins for franchisees. You also have faster access to stock which reduces storage (a key consideration in any new business. These products are also tested in the market, so you know that they will be successful from the get-go. In comparison with start-up business, buying and testing products on the fly, this is probably the key advantage of starting a franchise.
How to Start a Franchise Business
Now you have the info you need on why to opt for a franchise, let?s look at how to open a new franchise:
1. Identify Business Opportunities
Choosing the right industry for your franchise is essential. It has to be the right one for you. Here are three things you should ask yourself before you rush into it.
Online or offline?
Basically, do you want to work from an office, or in a store/restaurant/hotel?
Which industries interest you?
There are franchise businesses in travel, hospitality, retail, websites, health and wellness. Take a look at this list of industries to help you find the one that most interests you.
How much money do you have to invest?
Franchising, on average, costs anywhere between $30,000 to $100,000. You can start for less than this, but a good ballpark figure for a successful franchise that will offer the benefits we looked at above, should be around the $50,000.
At the other extreme are the blue chip franchises with near guaranteed success. For example, a franchise of McDonalds normally would cost between $1.3 and $2.3 million.
Once you have these questions clear, you can start to look for franchise opportunities. This would be a good time to contact us. We have experience in various industries, and we can help find a franchise that suits your needs
CONTACT US
2. Research the size, location, and competition of the franchise
This phase involves talking directly to the owners or managers of franchised companies. Try to get a feel of:
- The number of franchisees
- The annual expected revenue of the franchises (take location into consideration)
- The feel of the brand and the potential for growth. For example, is it an incumbent brand, coasting along. Or is it a vibrant start-up with a fast growth model?
Take a deep look at the competition. Are there threats from other businesses in the sector? We have clients that have spent time close to stores using a head-counting app to check the footfall of a competitor and the franchise. If you have time and patience, and a nice coffee shop near the target area. This information could be vital to your investment.
3. Is there interest in growth?
Franchisors can get overloaded. There are times that new franchisees aren?t given the attention. It could also be that franchise managers dedicate their time to the best selling franchises, and your franchise could be overlooked.
Be sure that a franchise will invest the time you need to get your new business off the ground. If the owner, or the franchise manager takes a long time to answer your emails or respond to phone calls, consider it a red flag.
4. Research Startup Costs
We mentioned the ballpark investment you need to set up a functioning franchise business. But there are other considerations you need to take into account.
- Liquidity – Most franchises require a three to six month runway of cash to be sure of the success in the intial phases
- Startup cost – The fee required to pay to the franchisor
- Training
- Travel
- Taxes and licensing – Local government varies on the requirements for the opening of franchises
- Monthly fees – Get this information from the franchisor in the early discussions
5. Create a Business Plan
In any business, franchised or independent, the business plan is the only document that really matters. To both franchisors and investors, a solid business plan will give them the information they need to know whether you can truly run a successful company.
The best advice for doing this is to go to a business advisor. Or talk to other business owners, but for this post here?s an abridges version of what should be included:
Executive report
Target market
Managment plan
Product offering
Funding
Marketing plan
Financial goals and KPIs
6. Scout locations
Now the fun begins. Finding the right place for your franchise involves travel, time, and plenty of patience. Be aware of:
Competition in the area
Use Google Maps to find any related business that could affect your sales. Explore, buy things from the store and ask yourself. Can I beat them?
Footfall
Use a head count app, find yourself a nice spot and spend 4 hours over two days counting the number of people who walk past the store front. Do this on a midweek day at lunchtime, and on a Saturday morning. This will give you a clear indication of the opportunities to hit your revenue goals.
But don?t stop there. Are you opening a fashion store, take into account age and gender as this is important to your sales.
Price
Include the cost of the rent in your business plan, as well as electricity prices.
Store fittings
Depending on the state of the store, you need to get an estimate of how much it will cost to get the store ready for opening. Your franchisor will help you with some of the fittings you need for the store, but the work required such as plastering and painting will be down to you.
Future Developments
Check with local authorities if there are future plans to, let?s say, build a new tourist attraction or a shopping center nearby. If yes, snap it up!
7. Get the word out
You have your plan, your store, and your brand new flagship franchise. Now it?s time to get to work on making the opening the best it can be. Here are some ideas to get the word out before the opening of your new store.
Opening party
Social media
Friends and Family
Flyering
Posters
Advertising
FAQs – Starting a franchise business
How much money do I need to start a franchise business?
The average cost to set up a new franchise in Spain is (realistically) between ?30,000 and ?100,000. You pay can pay less, and you can pay a lot more. But for a functioning franchise with an established brand, expect to pay these costs.
How much do franchise owners make per year?
This information will be disclosed in the franchise dossier of the company. Depending on the location, and the size of the company, the figure will obviously vary greatly. Rather than focussing on the hard cash, be smarter, and look the margins and the Return on your Investment.
Can I start a franchise business for free?
No
How do you start a franchise business?
1. Identify Business Opportunities
2. Research the size, location, and competition of the franchise
3. Is there interest in growth?
4. Research Startup Costs
5. Create a Business Plan
6. Scout locations
7. Get the word out
What is the most profitable franchise in Spain?
Here?s a list of the most successful franchises in Spain in 2022
100 Montaditos
OH MY CUT!
CASH CONVERTERS
CARLIN
TELEPIZZA
VIPS
DOMINO’S PIZZA
PANS & COMPANY
MAIL BOXES ETC.
CHARANGA
LLAOLLAO
The Good Burger
Summary of Franchise Business Guide
Starting a franchise business is not without risks. However, the added support and access to a built-in customer base make it a tempting model for many business owners.
If you are comfortable working with a team and appreciate the support and other benefits of being a franchise owner, it can be an ideal way to build your own business.
Remember online marketing is crucial to the success of any business in 2021. Understand the benefits of SEO and social media. Study up on practices like paid advertising that can help you reach a wider customer base.
Finally, don?t be afraid to hire a professional to handle your marketing. They can put their expertise to work while you focus on building your franchise business.
Are you considering starting a franchise? What challenges are you facing?