The benefits of starting a franchise
“Franchising” is a business model that allows individuals (also known as a franchisee) to operate their own businesses using the branding, products, and services of an existing company (also known as a franchisor). It’s a symbiotic relationship where both the franchisee and franchisor use each other to grow and achieve financial success.
Franchises continue to play a pivotal role in the American Economy and its consistency has continually helped introduce new jobs into the workforce. Some important franchise data to keep in mind:
- Franchise.org estimates that franchises will be responsible for creating over 250,000 jobs in 2023
- Franchises are expected to see a total economic output of over $860 billion in 2023 (a 4% increase from 2022)
- 15,000 new franchises are expected to be opened in 2023
Like every industry, the success of a franchise relies heavily on things like the economy, market, and the business itself, but there are plenty of added benefits that can act as a safety net for entrepreneurs.
Things to consider when opening a franchise
Before diving into the world of franchising, we recommend researching different opportunities and current industry trends. Understanding market demand and consumer preferences will guide you toward industries with growth potential.
Research your interests to find a franchise that may be a good fit
Many times, when an individual is looking to open a franchise, they have a specific industry or even business in mind, but that is not always the case. Sometimes, an entrepreneur simply wants to invest in a new business and is intrigued by the idea of using an established company/brand as a starting point to launch their business.
It also doesn’t hurt to try and find an industry that may be interesting to you. Selecting a franchise that aligns with your skills and interests increases the likelihood of long-term success. Consider your background, expertise, and passions when evaluating franchise opportunities. This can also help you maintain your interest and decrease the chance of getting burnt out.
Analyze costs and market opportunities
Every franchise has different fees and upfront costs. And, even within the same industry, a franchise’s costs can vary widely. Things like franchise fees, ongoing royalties, and other expenses should be researched heavily before any commitments are made. Conduct a thorough analysis of the financial requirements associated with each franchise option to determine compatibility with your budget.
A franchise accountant can help you analyze these costs and break down the expenses and fees to paint a clear picture for you and any business partners.
An overview of franchise documents, contracts, and agreements
While there are a substantial number of benefits to starting a franchise, you also need to keep in mind the somewhat strict nature of the industry. Since you are using another brand’s established identity, you will need to agree to certain terms that may or may not be beneficial to your business strategy.
You will also need to keep in mind all of the financial obligations previously discussed and understand the requirements that must be met during your time as a franchisee. We suggest you examine the terms outlined in the franchise agreement and discuss them with your attorney and franchise accountant. This legally binding document delineates the rights and responsibilities of both parties, including fees, territory rights, and operational guidelines.
Franchise Disclosure Document (FDD)
A Franchise Disclosure Document (FDD) is a legal document that franchisors are required to provide to potential franchisees. It contains detailed information about the franchisor, the franchise system, and the terms and conditions of the franchise agreement. The purpose of the FDD is to provide prospective franchisees with the information they need to make an informed decision about investing in the franchise.
The FDD typically includes information such as the franchisor’s background and experience, the franchise fee and other initial costs, ongoing fees and expenses, the obligations of both the franchisor and the franchisee, the territory in which the franchisee can operate, and the terms and conditions of the franchise agreement. It also includes the financial statements of the franchisor, as well as any litigation or bankruptcy history.
The FDD is an important document for both the franchisor and the franchisee. For the franchisor, it helps ensure compliance with legal requirements and provides transparency to potential franchisees. For the franchisee, it serves as a valuable source of information for evaluating the franchise opportunity and understanding the rights and obligations associated with it.
Accounting for your franchise
Making sure your franchise has an effective accounting strategy can play a vital role in ensuring the success of your business. Accurate financial records not only ensure compliance but also provide insights for informed decision-making.
An accountant with experience working with franchises can help you form robust systems for tracking revenue and expenses. This not only facilitates accurate financial reporting but also enables proactive financial management to optimize profitability.
The franchise accountants at Volpe focus on helping you understand the importance of managing tax obligations and how to set yourself up for financial success. We will help you create a plan that best suits your needs and help you keep your finances organized with services like bookkeeping and payroll while also making sure your fees and taxes are calculated and paid on time.
