Launching a franchise business in the US can be a rewarding way to enter the entrepreneurial world with the backing of an established brand. However, success requires careful planning and understanding of several important factors.
From selecting the right franchise and assessing financial commitments to navigating legal requirements, promotional strategies, and operational challenges, each step demands attention. Evaluating ongoing support and growth potential is essential for long-term success.
In this article, we will discuss six key points every prospective franchisee should consider before taking the plunge into franchising. Taking the time to weigh these considerations can help new franchise owners avoid costly mistakes and build a sustainable, profitable business.
Understand the Franchise Opportunity
The International Franchise Association predicted that franchising in the US will see steady growth in 2025. Around 20,000 new units are projected to open this year. This represents a 2.5% expansion, with the total number of franchise units nationwide becoming approximately 851,000.
However, it is essential to understand the franchise opportunity before investing. One must research the brand’s reputation, market presence, and support system. Evaluate the franchise’s business model, profitability, and competition within your desired location.
Knowing these details helps determine if the franchise aligns with your goals and resources. It also ensures a solid foundation for success in the competitive US market.
Conduct Thorough Market Research
According to Statista, it was estimated that there would be around 831,000 franchise businesses in the US in 2024. It will produce an economic output of around $897 billion. The most popular franchise businesses in the US are quick-serving restaurants, retail food chains, products, and services, as the second most lucrative.
Before launching, analyze the local market demand and customer preferences to identify potential gaps your franchise can fill. Study competitors’ strengths and weaknesses, price strategies, and target demographics to tailor your approach.
Understanding regional trends and economic conditions helps predict growth opportunities and challenges. It also ensures your franchise is well-positioned to thrive in its specific market environment.
Use Business Verification Services to Vet the Franchise
Business verification services are now essential to vet a franchise for making informed investment decisions. Business verification helps verify the legitimacy, financial stability, and compliance of the franchise and reduces the risk of fraud or hidden liabilities. This unified approach ensures faster, more accurate verification while maintaining high-security standards.
As per AU10TIX, these businesses automate and streamline both KYB (Know Your Business) and KYC (Know Your Customer) processes through a single API integration. Benefits include enhanced due diligence, reduced manual errors, and quicker access to critical information.
Ultimately, these services provide peace of mind, allow potential franchisees to confidently evaluate opportunities, and build trustworthy business relationships with franchise owners.
What specific red flags should I look for when verifying a franchise?
Look for inconsistent financial records, unclear or overly restrictive franchise agreements, and poor communication from franchisors. Beware of high upfront fees with limited support, unresolved legal disputes, or negative reviews from existing franchisees. These red flags may indicate potential risks in the franchise opportunity.
Review Financial Commitments and Fees
According to the International Franchise Professionals Group, franchise fees typically range from $20,000 to $50,000. However, they can exceed $100,000 for a master franchise. After opening, franchisees must pay ongoing royalties, usually 4% to 12% of gross revenue. Also, contributions to a shared marketing and advertising fund have to be paid, which generally adds another 2% or more of sales.
Carefully review all financial commitments, like initial franchise fees, regular royalties, and marketing contributions. Understand the total investment required and any hidden costs that could impact profitability.
Clear knowledge of these fees helps you plan your budget effectively and avoid unexpected expenses. It also ensures your franchise remains financially sustainable from the start.
What hidden costs do franchisees often overlook during budgeting?
Franchisees often overlook costs like equipment upgrades, internship expenses, and local marketing fees. Additional expenses can include insurance, renewal fees, and unexpected repairs or maintenance. Accounting for these hidden costs early prevents budget shortfalls and ensures a more accurate financial plan for the franchise’s success.
Assess Training and Support Provided
Strong training and support systems are critical for franchise success, especially for first-time business owners. Comprehensive onboarding equips franchisees with the knowledge needed to operate efficiently and uphold brand standards. Ongoing support, such as marketing assistance, operational guidance, and access to updated systems, ensures franchisees can adapt to changes and maintain consistency.
Franchisors that offer clear, accessible resources demonstrate a commitment to long-term partnership. This support network can significantly reduce the learning curve, improve problem-solving, and increase overall confidence in daily operations. When evaluating a franchise opportunity, assess the depth and availability of training and support for setting yourself up for sustainable growth.
Can poor franchisor support be grounds for legal dispute or contract termination?
Yes, poor franchisor support can be grounds for legal disputes or contract termination if it breaches the franchise agreement. Lack of promised training or assistance may violate contractual obligations and harm the franchisee’s business. However, legally proving it requires clear documentation and often legal counsel.
Understand Legal Obligations and Contracts
Knowing about the legal obligations and contracts is critical before signing any franchise agreement. Carefully review terms related to fees, territorial rights, renewal conditions, and termination clauses.
According to the International Comparative Legal Guides, the Federal Trade Commission established 16 C.F.R. Part 436, known as the “FTC Franchise Rule.” It is to govern the offering and sale of franchises nationwide. Although numerous states have their franchise laws, there is no single, uniform legal definition of a “franchise.” However, many state laws closely align with the FTC’s definition.
Consulting a franchise attorney helps ensure you fully comprehend your responsibilities and protections. It also prevents costly misunderstandings and safeguards your investment throughout the franchise relationship.
Laying the Groundwork for Franchise Success
Starting a franchise in the US involves more than choosing a popular brand, it requires strategic planning, legal awareness, and thorough research. By evaluating the opportunity carefully, financial and legal commitments, and leveraging modern verification tools, you position yourself for long-term success.
With the right foundation, your franchise journey can lead to profitable and rewarding business ownership.
