How to Buy a Franchise

Franchising presents a unique opportunity for aspiring entrepreneurs to venture into a pre-established business equipped with established branding and operational procedures. When you opt for franchising, you are essentially purchasing a well-established business that already has its branding and processes firmly in place.

To ensure you make the right choice, it is crucial to dedicate ample time to researching the wide range of franchise options available and finding the one that aligns perfectly with your goals and aspirations. It's important to note that buying a franchise involves an initial investment ranging from $10,000 to $100,000, which covers various fees. In addition to the upfront costs, franchisees are also required to pay ongoing monthly fees for marketing and royalties.

This article caters to individuals seeking a comprehensive guide to purchasing a franchise business. While franchising offers an excellent avenue for starting a business, it's essential to conduct thorough due diligence before committing to the substantial financial investment required. Understanding the fundamental aspects of a franchise and how it differs from a chain or independent business is paramount. Unlike a business born from an original concept, owning a franchise entails a distinct operational framework.

Our guide aims to provide you with all the essential information on becoming a franchise entrepreneur, also referred to as a franchisee. We delve into franchise examples, the process of buying a franchise, available financing options, the significance of engaging a franchise attorney, and other vital factors for consideration.

What exactly is a franchise? 

A franchise is a business model where individuals or a group of people own and operate a business under the established branding and guidelines provided by a parent company. The parent corporation assists its franchisees by offering marketing support, inventory management, and other resources in exchange for fees paid by the franchisee.

According to the International Franchise Association, a franchise is defined as a "method of distributing products or services involving a franchisor, who establishes the brand's trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system."

Key Takeaway 

Launching a franchise differs from starting a business from scratch. Franchises provide advantages such as brand recognition and support from the parent company, but they also come with drawbacks such as franchising fees and limited control.

What are the various types of franchises? 

There are five primary types of franchises that you are likely to encounter, each with its own opportunities and considerations.

Job franchises: 

These franchises typically require low investment and overhead, and some can even be operated from home. Usually, minimal equipment or inventory is needed. Examples include cleaning franchises, lawn care services, and children's services.

Product franchises: 

In this type of franchise, the franchise owner distributes the products of the franchisor. Generally, product franchise owners receive the franchisor's trademark but do not gain access to their infrastructure. Automotive, machinery, and soda companies are common examples of product franchisors.

Business-format franchises: 

This is the most common type of franchise, as it significantly reduces the burden on the franchisee. The franchisor provides the franchisee with access to their entire business system, including marketing, operations, and training. Fast food and business service franchises are prevalent examples of business-format franchises.

Investment franchises:

These franchises require franchisees to invest their own capital, which can be in the form of cash or the franchisee's management team. Hotels and large restaurant franchises are common examples of investment franchises.

Conversion franchises:

This type of franchise involves the franchisor acquiring existing businesses in their industry and converting them into franchise locations, utilizing their established systems. This allows the business to continue operating while benefiting from the franchisor's support. It leads to rapid growth for the franchisee and increased profits (as well as reduced competition) for the franchisor.

Tip: Not all franchises are created equal. Different types of businesses are better suited to specific franchise models. It is crucial to carefully consider the franchise type before making a decision to move forward.

Key Takeaway 

Franchises and chains differ in various aspects, including ownership structure, financing options, operating costs, and profitability. Understanding these distinctions is crucial in comprehending the unique characteristics of franchises and chains.

What sets a franchise apart from a chain? 

While a chain may appear similar to a franchise, as both involve multiple stores with the same brand and corporate policies, there are distinct differences between the two. Here are some key differentiators:


A franchise is owned by a franchisee, whereas a chain store is owned by the parent corporation. Although both types of ownership adhere to similar guidelines and corporate policies, the ownership structure differs.


Franchises have the advantage of seeking financial support from franchisees to cover both corporate and individual franchise location expenses. This allows franchises to experience faster growth compared to chain stores, which rely solely on the parent corporation for financing.

Operating Costs: 

Generally, franchises have lower operating costs than chain stores. Franchise businesses benefit from lower overhead and operational expenses because franchisees can take on tasks such as customer service and maintenance.


Franchise business owners are required to share profits with their franchisees, which can impact overall profitability. In contrast, chain stores have greater control over ownership, allowing the parent company to potentially generate higher profits in the long run.

A Step-by-Step Guide to Purchasing a Franchise

If you have made the decision to venture into franchise ownership, follow these steps to begin your journey:

Solidify your motivation. 

Owning a franchise, like any business, requires emotional, physical, and financial commitment. Before diving into franchise ownership, be confident in your reasons for pursuing this path. Recognize that owning a franchise does not necessarily make it easier than other business types, as all businesses come with their own challenges.

Research potential franchises. 

Popularity alone does not determine the right franchise for you. Extensive research is crucial when selecting a franchise. Look into how the parent company collaborates with franchisees and thoroughly examine the local market where your franchise will operate. Dedicate ample time to this process and consider the following criteria:

Initiate the application process. 

Once you have selected a franchise, begin the application process. It may be beneficial to seek the assistance of an attorney. Just as you screened franchises, you will also undergo screening as part of the application process. Franchisors will consider factors such as:

Arrange a "discovery day" meeting. 

Traditionally held in person, a "discovery day" is a meeting between the prospective franchisee and the corporate office of the franchise. During this meeting, you have the opportunity to ask questions and gain a deeper understanding of the franchise before making a commitment. With the shift towards virtual interactions due to the pandemic, many discovery days are now conducted online. However, as restrictions ease, consider requesting an in-person meeting to gain further insight into the partnership.

Seek financing. 

Most franchisees require financing to launch their businesses. This often involves securing a bank loan. If you need funding for your franchise, explore various business loan options, such as those recommended in our Biz2Credit and Rapid Finance reviews.

Thoroughly review and return franchise paperwork. 

Franchise agreements are typically lengthy and may contain complex terminology. Consulting with an attorney can be valuable in navigating this process and ensuring a comprehensive understanding of the terms.

Secure a location. 

By this stage, you will have already chosen the town or city for your franchise. Now, it is time to procure a physical commercial space by either purchasing or renting.

Receive training and support. 

As part of an established brand, you will undergo training to fully immerse yourself in the business. Training should cover the following areas:

By following these step-by-step instructions, you will be well on your way to becoming a successful franchise owner.

Understanding the Investment Costs and Franchise Fees

When considering franchise ownership, it's essential to be aware of the initial investment costs and franchise fees involved. Here's an overview of these financial aspects:

Franchise Fees: 

Franchise fees are the payments required to operate a franchise location. Consider them your entry fee to gain a share of the franchise. The cost of franchise fees can vary significantly. Some franchises impose an initial fee ranging from $10,000 to over $100,000. Additionally, ongoing marketing and royalty fees are often based on a percentage of your monthly revenue.

For example, if your average monthly revenue is $25,000 and the franchisor charges a 2% marketing fee, you would need to pay $500 per month. Royalty fees typically range from 4% to more than 12% of your revenue, depending on the specific franchise.

Profit Potential: 

The amount of money you can make as a franchise owner depends on various factors, including:

According to Glassdoor data from December 2021, franchise owners earn an average of around $93,000 per year. This figure comprises a base annual salary of approximately $63,000 and an additional annual salary of about $30,000. However, it's important to remember that actual earnings can vary significantly based on the specific franchise, location, and other factors. To gain insights into potential earnings, consider asking existing franchise owners the following questions:

Additionally, consider the local market and competition. The presence of the same franchise or similar competitors nearby can impact your profitability.

Financing Options: 

While franchises require upfront fees, there are various financing options to help you get started. Here are some common options to consider:

Each financing option has its own advantages and considerations, so evaluate them carefully based on your specific circumstances. In summary, understanding the initial investment costs, franchise fees, profit potential, and financing options is crucial when entering the world of franchise ownership. Thorough research and due diligence will help you make informed decisions about the financial aspects of owning a franchise.

Top Franchise Opportunities

Franchising has become a popular choice for many entrepreneurs, with a significant percentage of small businesses and larger employers operating as franchises. Here are some of the most notable franchises of 2023, according to Franchise Gator:

Is Hiring a Franchise Attorney Necessary?

Before venturing into franchise ownership, it's advisable to consider hiring a franchise attorney who can provide valuable guidance throughout the due diligence process. A franchise attorney plays a crucial role in reviewing and explaining critical provisions in the franchise agreement, ensuring that you have a comprehensive understanding of your obligations and responsibilities as a franchisee.

A franchise attorney provides education about franchising, insights into industry norms and customs, and assistance in negotiating modifications to the franchise agreement. From the franchisor's perspective, a franchise attorney helps draft and maintain the franchise disclosure document, a legal requirement for selling franchises in the United States.

Additionally, franchise attorneys navigate the complex legal compliance landscape at the federal and state levels.

By engaging a franchise attorney, you can avoid compliance pitfalls, such as lacking a franchise disclosure agreement, encountering sales compliance issues, and failing to conduct necessary annual renewals and maintenance of system disclosures. 

Furthermore, having professional assistance when reviewing a franchise agreement offers benefits like understanding obligations and expectations within the franchise system, knowledge of industry norms, insight into potential concerns, and counsel for negotiating modifications.

Starting Your Franchise on the Right Foot

Franchise ownership can be a fulfilling career path, but it requires thorough due diligence. Conduct extensive research, evaluate potential earnings, and explore various financing options. Hiring an attorney is often a wise decision to ensure a smooth journey toward becoming a franchise owner. By approaching franchising with the right knowledge and professional assistance, you can set the stage for a successful and rewarding franchise experience.