The 7 steps to becoming a franchisee
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Jul 8, 2024
The franchise is a business model that has been very popular among entrepreneurs in recent years. However, becoming a franchisee is not an easy experience, as it indeed requires sometimes long and rigorous preparation. If you are interested in franchising but are unsure how to go about it, this article is for you.
Establish a personal assessment
Signing a franchise agreement requires a great deal of reflection. Indeed, it's better to think ahead before embarking on the adventure, which is why it's necessary to conduct a personal assessment. This step allows you to engage in your own introspection by focusing on two axes: the human axis and the business axis in order to make the best possible decisions.
Your skills: Here, the aim is to determine your capabilities to become a franchisee. Take stock of your professional background: what are your skills and your areas for improvement? This step is necessary to determine in which sectors you will have the greatest affinity for successfully carrying out your project.
Your motivations for becoming a franchisee: Becoming a franchisee requires specific skills, but also a lot of energy. Finally, it's possible that this new experience will lead you to make concessions, so are you ready for all these sacrifices? So now is the time for you to assess your true motivations. Here are some examples of questions that will help you gain clarity:
Why become a franchisee?
Is becoming a franchisee compatible with my personal life?
Am I ready to completely change my lifestyle, etc.?
If you cannot answer all these questions, it's perfectly normal. You may need an outside opinion. Don't hesitate to reach out to your loved ones or organizations such as the chamber of trades to accurately define your qualities as well as your areas for improvement.
Know your financing capabilities
Creating a franchise certainly has several advantages, but it still represents a very significant investment. Becoming a franchisee without capital can prove to be more complex as being a franchisee requires paying an entry fee to the franchisor: ranging from 5000 to 1,000,000 €, but other elements must be taken into account, such as the necessary stock to start the business that should not be overlooked!
It must also be noted that the cost of a franchise varies depending on the chosen brand. Additionally, there are websites that allow you to conduct searches based on the business sector and your personal investment. Keep in mind that the largest franchise networks often have higher financial contribution requirements.
Develop a business plan
Once you have gathered as much information as possible and you feel you have the necessary resources to become a franchisee, you will need to develop your business plan. So, what is a business plan?
A "business plan" is a professional document intended for the franchisor or banker. In this document, you will need to present several elements that will allow the people who read it to get an idea of the economic feasibility of your project. The business plan is a tool that will help convince the people it is addressed to, but also assist you in defining your project.
If this document does not mean much to you, here are some elements that should be included in your business plan:
An executive summary (a summary of your project),
A business model,
The legal characteristics of the franchise,
A projected income statement,
A projected balance sheet,
A projected cash flow plan.
Choose the right franchisor
Before committing to sign a franchise agreement, it is important to get to know the franchisor well. To do this, do not hesitate to meet with them several times to discuss. It is essential that your potential franchisor inspires confidence from the very beginning. For example, are they transparent? Do they answer all your questions? Additionally, do not hesitate to seek advice from existing franchisees. Considering the “potential” of the franchise network is crucial: potential includes both the current situation and the prospects of the network. Conducting a market study in advance provides information on the profitability of the franchisor you wish to join.
As previously mentioned, depending on the activity and the brand, the required investment can vary greatly. The budget to consider depends on the following elements:
The location of the unit: whether it's an office, a shop, or a restaurant
The layout and equipment
The entry fee: it serves to finance the support of franchisees and the development of the network (transfer of know-how, maintenance, assistance, communication…)
The cash flow, the working capital required
The stock (if applicable)
The reputation of the network: a brand with significant notoriety (or large brands) will often demand larger contributions from its future franchisee.
The cost will also depend on the selected business sector: among these sectors, you will find 3 types of franchises:
Distribution franchises: the franchisee sells products that bear the franchisor's brand. This often concerns sectors related to retail.
Service franchises: the franchisee offers a service under the brand, the trade name, or even the franchisor's brand while adhering to their guidelines. This applies to vehicle rentals or hotels, for instance.
Production franchises: the franchisee manufactures, according to the franchisor's instructions, products that they sell under that brand. They can be found in the furniture and food sectors…
Which franchise to choose?
Service franchises are the most affordable. Distribution franchises, on the other hand, generally require more resources, especially if one wishes to become a franchisee in the restaurant sector. They indeed require friendly and well-located premises (in commercial areas, city centers, ...).
Define the terms of the franchise agreement
Before signing the franchise agreement, the franchisor is obliged to provide the future franchisee with the Pre-Contractual Information Document (DIP). This document gathers all the necessary information to enable the franchisee to commit fully informed. You will understand that it is important to read this document carefully before signing the contract. You should pay extra attention to these elements:
The modalities under which the franchisor will provide you with their know-how,
Information regarding the brand and the franchisor's company,
The duration of the contract,
the franchisor's obligations and the franchisee's obligations,
The financial conditions of the franchise: entry fee, mandatory capital, royalties,
The exclusivity clauses, particularly concerning the market area, sales supply channels, activities.
As this information is provided by the franchisor, do not hesitate to compare it with other sources to ensure the transparency of your potential partner.
Choosing the right location for your franchise
To become a franchisee and ensure the longevity of the business, one must know their terrain and strategically establish themselves. Every local business should attract customers and be easily accessible. Initially, you can consider the information present in the DIP (Pre-Contractual Information Document) since this document provides access to the locations of other franchises; do not hesitate to refer to this data to make your choice.
To properly assess your location, you can conduct your own analysis by visiting the sites where you wish to establish yourself. The aim is to get a sense of the city: atmosphere, presence of potential competitors, accessibility, attractiveness, etc. Moreover, make sure to stay close to an attractive area: Overall, if your franchisor proposes that you establish your brand in an area they have never tested before, be cautious. As a franchisee, prefer areas similar to those where other franchisees have successfully developed their activities. Similarly, having a supply center at a reasonable distance from your premises is a significant advantage that offers you flexibility, particularly regarding inventory management.
Be careful, the territorial and exclusivity clauses must be considered when choosing your location. Indeed, in your franchise agreement, if this clause exists, it will be impossible to establish yourself if a brand or franchise is already present in the same geographical area.
Choosing the legal status of your franchise
As a franchisee, you must consider what legal status you would like to give your nascent business. This choice depends on many criteria: do you plan to develop your franchise alone or with others? Does your franchise require a significant investment? How do you wish to protect your personal assets?
Once the initial exchanges with the franchisor have taken place and feedback from other franchisees has been obtained, ideas will be clearer. It is then time to choose the legal status most suited to the franchise project. Although the franchisee has the choice among different social forms (EURL, SARL, SA, SAS, etc.), two models tend to prevail.
The SARL model: Generally, an entrepreneur who opens a franchise alone predominantly chooses the SARL to obtain TNS status (self-employed worker). The limited liability company is one of the most suitable statuses for starting a business in general. Among the advantages of this status, it is formally regulated, and your liability is limited to the funds you contribute to the company.
The SAS model: In comparison, entrepreneurs who establish a franchise with multiple partners are more likely to opt for the SAS option. This status has the advantage of being based on fully adaptable statutes, making it easier to hold multiple points of sale.
In summary:
Franchising is a popular business model for entrepreneurs, but becoming a franchisee requires rigorous preparation. To succeed, it is important to conduct a personal assessment, know your financing abilities, create a business plan, choose the right franchisor, define the terms of the franchise agreement, select the right location for your franchise, and choose the legal status of your franchise.
F.A.Q:
1. What is a franchise agreement?
A franchise agreement is a contract between a franchisor and a franchisee, in which the franchisor grants the franchisee the right to use its brand, know-how, and business model to operate a business under the franchisor’s brand.
2. How to conduct a personal assessment to become a franchisee?
To conduct a personal assessment, it's important to focus on two axes: the human axis and the business axis. The human axis involves evaluating your skills and motivations to become a franchisee, while the business axis involves determining in which fields you have the most affinity to successfully carry out your project.
3. How to know your financing capabilities to become a franchisee?
To know your financing capabilities, it is important to consider the entry fee, the necessary stock to start the business, and the cost of a franchise, which varies depending on the chosen brand. There are websites to conduct searches based on the business sector and personal investment.
4. What is a business plan and why is it important to becoming a franchisee?
A business plan is a professional document intended for the franchisor or banker, which presents the key elements of the franchise project. It includes an executive summary, a business model, the legal characteristics of the franchise, a projected income statement, a projected balance sheet, and a projected cash flow plan. It is important for convincing the people it addresses and for helping the franchisee to define their project.
