This article is made to answer the most frequently asked questions our customers have when acquiring successful franchises in the USA. Normally, these questions are usually complex and therefore the answers are complex at the same time.
How to Acquire Successful Franchises in the United States
To acquire successful franchises it is necessary to dedicate your time, as well as educate yourself as much as possible in terms of acquisition. Normally, the pure acquisition process can take between 3 and 6 months, depending on many factors. Most of those times are up to you as an investor/entrepreneur. The good news is that ALMOST all of this process is done virtually/remotely. And it is the best way to do this process without breaking the piggy bank.
The reason is that all the franchises are distributed all over the USA, so there is no point in traveling all over the USA when you are just prospecting a brand. Once something is being done with a brand, it is when you meet the franchisor in person, usually this is usually on the day of discovery (step #4).
5 Steps to Investing in a Successful Franchise in the U.S. USA
Step 1 – Introduction to the franchisor
It is important that you have your expectations in order before making a franchise acquisition. That’s why the first step is to have one or more initial conversations with the franchisor. Normally, these initial conversations will be introductory, they will want to know your profile, professional experience, goals, and economic solvency. Likewise, you will be able to ask all kinds of questions to get to know the brand, understand the business model, what you are acquiring with the franchise, and about its industry in general and how it works.
Step 2 – FDD submission and review
The Franchise Disclosure Document (FDD) is the most valuable document when purchasing a franchise in the USA. If someone is offering you a franchise and they don’t have an FDD, be very careful, this can be a red flag.
Legally in the USA, to be called a franchise, one must have an FDD approved by the state where you are going to be operating and also by the FTC (Federal Trade Commission). Also, legally, anyone who is offered a franchise must have had access to an FDD at least 14 days before signing any agreement with the franchise. For small details like this it is very important to understand the laws and rules to acquire a franchise in the USA.
So it is extremely essential to review this document in detail and then have a conversation with the franchisor to clarify any doubts or questions you have about FDD. This is a long document, usually over 250 pages. At Interlink FBC we help you understand FDD.
Step 3 – Validation
After you’ve read the FDD and had several conversations with the franchisor, you should have access to being able to talk to any franchisee in their system. We call this part of the process “validation”. In the validation step you will be able to talk to current franchisees and you will be able to ask them any type of question.
Some good questions to ask franchisees are:
How did your first year go?
What problems did you have when you started your business?
If you could change something you did in the beginning, what would it be?
How much are they earning?
Would you recommend this franchise?
And many more questions.
These are just a few examples of common questions to ask existing franchisees. We prepare all of our clients for each of the calls so that we can get the most out of all these vital conversations.
Step 4 – Discovery Day
The penultimate step is the “discovery day” with the franchisor, where you and your partners go to visit the corporate premises/offices. Here you will usually be exposed to the culture, see the entire operation, get to know the corporate group, and see everything that is behind the franchisor. This will be the first time you’ll meet them in person and that’s normal.
Step 5 – Sign the Agreement with the franchise
This last step requires you to sign the agreement with the franchise and pay the franchise fee. Here you will officially own your territory, and you will start the development part.
Advantages of acquiring successful franchises
One of the most common questions when you are thinking about acquiring a franchise is “what am I getting when I acquire a franchise VS starting my business from 0”. Here we are going to answer what is the benefit of paying the franchise an initial fee (called a “franchise fee” in English).
Reduce risk/learning curve
One of the first mistakes that many entrepreneurs/investors ignore is the learning curve. That curve can be so costly that it often ends up with the same business. The main reason why a business fails in the USA is the lack of capital, many times it is not because the business does not work, but because the learning curve is not contemplated in the business plan.
A franchise eliminates a large part of the risk and allows you to know how much you will need to be able to start the business. Remember that the franchisor has experience opening their own business just like you, and has also helped dozens or hundreds of entrepreneurs do the same. Imagine how many mistakes you can save, how many headaches, and how many thousands of dollars you can save. This applies even more when you are a foreign investor.
Training
All franchises offer formal training and typically have a format similar to the following: one part of your training at their corporate offices, another part of virtual training, and at the end a training at your new location or location. The average duration could be between 2 to 4 weeks of intensive training, and they also tend to have constant training. For example, best practices, how to improve certain aspects of your business, implement new systems, etc.
These trainings are usually so intensive that most franchises do not need you to have experience in the industry or sector. Many of the best franchisees in franchise systems typically come from completely different industries and have no knowledge in the industry before entering. A detailed description of the training program can be found in section 11 of the FDD for each of the franchises.
National contracts/national accounts
One of the benefits of A GOOD franchise is that some have access to national customers or accounts. If you open a location in a territory, you’re essentially assigned the customer. This tends to be more in businesses that provide services to businesses (B2B). For example, in the commercial cleaning industry, some franchises have national accounts with other franchises or businesses to do commercial cleaning at their locations, wherever they are. Every industry is going to have a similar component to this.
Automation
One of the things that many people don’t notice about a franchise is the level of technology that goes along with the franchise. There are successful franchises that have invested millions of dollars in proprietary software that you will have access to as a franchisee. An elementary component of a good franchise.
This technology is normally going to have a lot of process automation, what does this mean for you? Less work and probably fewer employees. Remember that the goal is to work effectively, these automations and technology give you access to be able to work more efficiently and also to have better margins in your business. Franchises tend to have better profit margins compared to independent businesses for this very reason.
Marketing
Normally, this is the most important for many customers and I agree with that. GOOD franchises are going to have a very advanced level of marketing, they also tend to go hand in hand with technology. Many successful franchises in the United States often mix automation with marketing. Each franchise is going to be different in the amount of support they give you in this area. Some franchises will do all this part for you and you just pay them “X” amount for that service, or sometimes they give you all the content and you already send it to your distribution channels that you have locally, so each brand will have a different scheme.
Technical support
Technical support can also be very effective and each brand is going to have a different type and level of technical support. For example, a common technical support is usually “call centers” for your customers, many times this takes away the need to have a receptionist or something similar. Another usual technical support is that they have internal technical support teams in the operation. If you have a fault with a piece of equipment or a product, there are franchisors who have technical support for all that.
Suppliers
Depending on the franchise, this can be one of the most important factors in terms of which suppliers you have access to as a franchisee and also the prices they can give you for belonging to the franchise, VS being an independent business. I have had clients in the remodeling sector that only because of this factor of suppliers increased their profit margin by 10%, and in a few months they recovered their investment. This is just an example, and depending on the franchise you may have preferential rates on some products or services from some suppliers.
Network
The franchise is surrounded by contacts often nationwide, and you can also have access to their accountants, lawyers, consultants, etc. Having the best advisors in each area with extensive experience in the sector will always reduce your learning curve and improve your profit margins.
Experience
Franchises usually operate their own locations. There are franchises that are operating 0 or 1 unit of them and there are franchises that are operating 100-500 locations. So most franchises know your problems before you know you have a problem, and they also know how to solve any problems you may have in the future. This is an extremely important component in a strong franchise because you have a very experienced team helping you all the way. Some successful franchises in the USA have a system where they assign you a “coach” to be aware of your business and be constantly supporting them.
Location/Territory Support
Depending on the type of business, this can be an elementary part and even more so when they are franchises in which the entire operation is done under the same premises. For example, beauty businesses, food, gyms. These types of businesses depend largely on finding the best location, that is why these types of franchises have teams that are 100% dedicated to finding the best locations for your franchise.
What is the cost of investing in successful franchises
The million-dollar question. It should be clarified that it is not a simple answer, since it will depend on the industry, type of business, if you need a premises (rent), etc. For example, if you are going to set up a fast food franchise, most of your investment will go to the refurbishment of the premises and kitchen equipment, not so much to the payment of the franchise.
If you want a quick answer to such a general question, the investment range of a franchise can be $40,000 USD – $3,000,000 USD. Normally, the investment range I recommend to find a good business opportunity is between $120,000 USD – $300,000 USD (full investment). In this range there are many very good opportunities and you are not so limited in options. Some investment averages by industry would be:
1. Food/Restaurant Franchises: $300,000 USD – $900,000 USD
2. Beauty franchises: $200,000 USD – $400,000 USD
3. Service Franchises: $70,000 USD – $250,000 USD
Franchises usually charge an upfront fee (called a “franchise fee”). This initial fee can vary greatly, the range is very wide, the largest variable of the initial payment will be the industry in which the franchise is located.
For example, in a commercial cleaning franchise, the initial fees average between about $70,000 USD – $100,000 USD and it is not that they are “expensive”, but that they cover very large territories compared to other franchises. In a restaurant franchise a good average could be between $25,000 USD – $50,000 USD down payment. In service franchises, this initial fee can vary between $35,000 USD – $70,000 USD.
The important thing here is not how much the initial payment is, but what added value that franchise has, because a franchise may seem “expensive”, but if they have a very attractive added value it is worth investing that extra $10,000 or $15,000.
Something very interesting about franchises and which many people do not know is that the investment of the initial fee of a franchise cannot be either raised or lowered by American law. This means that it is a fixed fee established long before they talk to you. It is relevant to mention this because many investors are not usually honest with their financial figures for fear of scams or fraud. You can rest assured that there are government entities that regulate franchise activities, as well as the FTC (Federal Trade Commission), which is an entity made to protect consumers like you from fraudulent practices in the country.
How to Identify Successful Franchises in the United States
This is a very common question from all our clients for which there is no immediate answer as there are many variables that we have to analyze.
First we have to identify different questions in order to have a more elaborate answer. We work with more than 750 successful franchises throughout the USA, in more than 35 different industries, within those 750 franchises we have highlighted approximately 150 that are the best using different criteria.
Among these 150 options, you have to analyze the criteria you have, availability of territory, analyze if it is a good territory for the business or industry, and understand other relevant points. That’s why this process can be a bit tedious, but it’s worth the research and analysis.
Within our process there is a lot of education in order to make an intelligent decision. These types of decisions cannot be made if you do not understand exactly what you are getting into. That’s where many investors/entrepreneurs get it very wrong.
Most want to be sold for an “idea” or a business that is going to generate millions without doing any work. The truth is that this probably does not exist and if it does exist there is a lot of risk behind the investment. That is why many people fall into the hands of fraud and everyone thinks that “it will not happen to them”, but believe me that this happens to “smart” people with a lot of business experience.
A franchise, like any business, has to dedicate its time and hard work at the beginning. The good thing about franchising is that you can usually grow the business quickly so that you can run it semi-passively. Some franchise owners after 3-5 years are only spending 5-15 hours on their business and are generating substantial income.
If you also want to find successful franchises according to your goals, industry preferences and personal objectives, count on us! Schedule a free initial consultation with our team here: Contact Interlink FBC
