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Franchising is an appealing path for aspiring entrepreneurs seeking a structured way to start a business. Thanks to established brands offering proven systems, financing options and a supportive community, many find the franchise model a less risky alternative to launching a brand from scratch. However, potential franchisees also must weigh considerations like royalties, start-up costs and the significance of thorough research before diving in.
This guide, assembled from insights from experts the ICSC Small Business Center has featured over the past two years, digs into the benefits and challenges of franchising.
“I know myself,” said Coreen Cammarano, owner of 11 franchise locations of The Joint Chiropractic. “It’s my personality. I love structure. I love school. I admire people who can start from the ground up, but personally, I don’t believe in reinventing the wheel.”
MORE FROM CAMMARANO: A Franchisee Explains Why She Chose Franchising over Starting Her Own Business
“There are a lot of perks for new [franchisees], especially when you’re still learning to own a business,” said Alan Jiménez, owner of a Con Azucar Cafe in Sacramento, California. “With a franchise, you have structure, set guidance and the benefit of having team members who have done this multiple times. You’re coming in with a team and a proven concept.”
MORE FROM JIMENEZ: Opening a Brick-and-Mortar Franchise Location
“When you buy a franchise license, you’re buying the ability to open a business and be part of that team,” Cammarano said. “You’re buying all the franchise’s systems. You’re buying access to any proprietary information they might have. You’re also buying into their system and network. I have people, for instance, at corporate I can go to and say ‘Hey, I really need advice on this,’ and they help me. … To me, that’s well worth the price of admission.”
“The unexpected power of franchising is the franchise community itself. Everything I learned, I learned from other franchisees” of the same brand, said Cammarano. “They are like older brothers and sisters. I can go to them and say ‘Hey, I’m having trouble hiring. What am I doing wrong?’ or ‘Am I not doing a good job screening my front desk candidates? Why are they leaving after four months?” or “What did you do when this piece of equipment broke?” That community was a real, added benefit. I think that’s why a lot of small businesses fail: Everyone is a competitor versus a co-worker. There are 900 Joint [Chiropractic units] open right now and I have made over 100 friends that I can text, call or email, and it has made all the difference.”
“One of the important things to know [with franchising] is you’re going to be able to get bank financing that you would never be able to get as an individual,” said Ambro Blackwell, a commercial financing expert and author of the book Small Business Loans Made Simple: Revealing Secrets and Strategies for Established Businesses. “[Investors] know an Orangetheory, for example, is going to do better than somebody just opening up a workout gym because people know the model.”
MORE FROM BLACKWELL: Demystifying Small Business Loans
Franchising can come with significant upfront costs, according to ICSC’s Commerce + Communities Today. For example, Ben & Jerry’s requires a franchise fee as high as $39,500. While it offers to waive this fee, along with three years of royalty payments, for businesses that are at least 51% owned by individuals identifying as Black, Indigenous or People of Color, potential franchisees must still meet strict financial requirements. According to the company’s website, prospective owners need to have a strong credit history, a minimum net worth of $350,000, and at least $100,000 in cash or securities. The total start-up costs for a full-size shop can reach as high as $474,300. Similarly, opening a Retro Fitness franchise demands even more substantial resources. Prospective franchisees and their partners must have $500,000 in liquid capital and a combined net worth of $2 million, according to Retro Fitness’ requirements.
MORE FROM C+CT ON THE FINANCIAL REQUIREMENTS: Fast-Growing Franchise Field: A Close Look at the Money, the Concepts and the Space They Want
Luxe Redux Bridal founder Lindsay Fork shared a question her father once posed to her: “Why would you go into a franchise situation and pay royalties to someone else when this is something you’re passionate about and you’ve proven that you can do it?’” Today, Fork owns a bridal boutique, eight bridal resale shops and one bridal resale outlet and is considering franchising her own concept.
MORE FROM FORK: Off the Rack and on the Rise: How Luxe Redux Bridal Grew and Its Hope for 40 Stores in 5 Years
“If you’re borrowing from a bank for a franchise, you want to make sure you’ve first checked the [U.S. Small Business Administration’s] registry of approved franchises” at Franchise Registry, said Vincent Vicari, regional director of the New Jersey Small Business Development Center at Ramapo College. “Being approved means that the SBA has vetted the franchise for certain standards, which could expedite the loan process. But you want to make sure it’s an A-level franchise, that you’re not investing in some obscure thing that’s bring restarted or something that has an international ownership or an out-of-state ownership where you have no control or recourse [if things go awry.] You also want to check the other franchises by going there: not just calling or sending an email but go and look at them. It’s all part of due diligence.”
MORE FROM VICARI: A Primer for Financing Your Small Business
“Each franchise has unique requirements for signage, which can include the size, color, location, fabrication and lighting,” said Rico Macaraeg CEO of NJ Sweat, a SweatHouz franchisee. “There can be [friction] if the franchise’s requirements are not necessarily in conformance with what the landlord requires or will allow. Know that you’re going to have to negotiate. Usually the franchise comes around, but know, if you’re a franchisee like myself, that you’re very transparent and communicative with your headquarters. You are an extension of that brand, and they really want to make sure that everything looks within their guideline.”
MORE FROM MACARAEG: How to Choose Where to Open
In June, the Federal Trade Commission made a major move to protect franchisees by warning franchisers not to limit franchisees’ ability to talk to government officials and not to charge hidden fees. This decision follows a yearlong investigation that found many franchisees felt they had little control over their businesses and faced unexpected costs. As a result, potential franchise owners can expect clearer information about fees and more freedom to report problems without fear of retaliation, creating a fairer environment for those looking to start a franchise
MORE ON FTC GUIDELINES FOR FRANCHISERS: Federal Trade Commission Takes Stand for Franchisees
By Rebecca Meiser
Contributor, Commerce + Communities Today and Small Business Center
ICSC champions small and emerging businesses in getting from business plan to brick-and-mortar.
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