7 Steps to Start Your Franchise Business

Entering the world of franchising can be a smart move for aspiring entrepreneurs, providing a chance to leverage established brand recognition and proven business models. But how to start a franchise successfully? With thorough research, planning, and due diligence, you can set yourself up for long-term success. This step-by-step guide covers everything from understanding the franchise model to overcoming challenges, helping you launch your franchise with confidence.

Whether you're a business owner seeking a proven path or an entrepreneur looking for a safe first venture, these steps will help you unlock the potential of franchising.

What Does It Mean to Franchise a Business?

Before starting, it's essential to understand what franchising involves. A franchise is a legal and commercial relationship between the owner of a trademarked brand (the franchisor) and an individual or company seeking to operate a business under that brand name (the franchisee).

The franchisor grants the franchisee the rights to use trademarks, sell products or services, and run an established system in exchange for an initial franchise fee and ongoing royalties. Essentially, you’re operating as an independent business owner under the umbrella of a well-known brand.

As per IFA, Total franchise output is projected to exceed $936.4 billion in 2025, rising by 4.4%, from $896.9 billion in 2024.

While franchising offers a higher success rate compared to starting a business from scratch, it’s not without complexities. Now, let's break it down step by step.

Step 1: Understanding the Franchise Business Model

Before charging ahead, take the time to comprehend how the franchise model works. Unlike independent businesses, franchising offers a balance between independence and structure.

Key Features of the Franchise Model:

• Predefined Systems: Franchisees must follow the operational systems and processes established by the franchisor, ensuring brand consistency.
• Shared Profits: Franchisees pay initial fees and ongoing royalties, which can vary by brand.
• Mutual Obligations: The franchisor provides support and training, while the franchisee is responsible for daily operations.

Understanding the model will help you decide if franchising is the right fit for your personality and business goals.

Step 2: Exploring Franchise Opportunities and Finding the Right Match

Not all franchise opportunities are created equal. Your first step is to research potential franchises that align with your skills, interests, and financial capacity.

The report produced annually by the IFA, In 2025, the US franchising sector is projected to continue its growth, adding approximately 210,000 jobs and 20,000+ units, reflecting a 2.4% and 2.5% increase, respectively.

Tips for Choosing a Franchise:

• Assess Your Interests: Do you enjoy working with food, fitness, or retail? Pick a business you’re passionate about.
• Investigate the Brand: Research well-known franchise brands in your chosen industry. Check reviews and success stories online.
• Attend Franchise Expos: Meet franchisors and franchisees to gain firsthand insights.
• Research Market Demand: Ensure there’s enough demand for the brand’s products or services in your chosen location.

Finding the right fit is key to ensuring both personal satisfaction and business success.

Step 3: Reviewing the Franchise Disclosure Documents (FDD)

The Franchise Disclosure Document (FDD) is your ultimate guide to understanding the franchise opportunity. It’s a legal document mandated by the Federal Trade Commission (FTC) to provide potential franchisees with necessary details about the franchise system.

What to Look for in the FDD:

• Costs and Fees: Learn about the franchise fee, royalties, and other costs.
• Franchisee Obligations: Understand your responsibilities as a franchisee.
• Litigation History: Check if the franchisor has faced legal challenges.
• Earnings Potential: Review historical financial performance metrics.

Step 4: Calculating Total Costs and Securing Financing

Franchising comes with upfront and ongoing costs, so you’ll need to create a detailed financial plan.

Breakdown of Franchise Costs:

• Initial Fees: This includes the franchise fee and setup costs.
• Operational Costs: Think rent, salaries, marketing, and utilities.
• Ongoing Royalties: Percentage of monthly sales paid to the franchisor.

Once you understand the financial requirements, explore funding options:

• Use personal savings or a business loan.
• Seek Small Business Administration (SBA) loans designed for franchisees.
• Look for franchisor financing programs.

A clear understanding of costs and a solid financing plan will save you from potential financial stress down the road.

Step 5: Assessing Franchise Agreements and Franchise Law Compliance

The franchise agreement is the legally binding contract with the franchisor. Take time to review it carefully as it outlines your rights, obligations, and relationship structure.

Key Areas to Review:

• Territory rights and exclusivity clauses.
• Renewal and termination terms.
• Any restrictions on suppliers or marketing.

Ensure compliance with local, state, and federal franchise laws. This is where consulting legal experts can make all the difference.

Step 6: Evaluating Franchisor Support and Training Programs

Franchisor support is one of the greatest advantages of owning a franchise. Evaluate the kind of training, resources, and ongoing support offered.

Examples of Franchise Support:

• Initial Training: Covers operations, management, and best practices.
• Marketing Support: Access to national ad campaigns and promotional materials.
• Operational Tools: Point-of-sale systems, supply chains, and reporting tools.

Speak with existing franchisees to gauge the effectiveness of the franchisor’s support systems.

Taco Bell hit $1 billion in profit for the first time in 2024, with 24% margins in company-owned stores. Strong demand continues into 2025, with U.S. same-store sales expected to rise 8% in Q1, driven by new product launches.

Step 7: Setting Realistic Expectations and Planning for Long-Term Success

It’s easy to focus on the initial stages of opening a franchise, but long-term planning is just as crucial. Investing in professional franchise design services ensures a strong foundation for sustained success—because success doesn’t happen overnight.

As per Baking Business, In 2025, McDonald's is focusing on a value-driven strategy, aiming for a 46%+ operating margin, with plans to open around 2,200 new restaurants globally, including a significant number in China and the US.

Strategies for Long-Term Franchise Success:

• Set realistic financial and operational goals.
• Build a strong team and promote a positive workplace culture.
• Continuously engage with your local community.
• Stay updated on industry trends to maintain a competitive edge.

By setting realistic expectations and a strategic plan, you can grow your franchise into a thriving, profitable business.

Challenges and Their Solutions in Running a Franchise Business

Running a franchise isn’t without its challenges. From aligning with franchisor rules to managing competition, you’ll need resilience and strategy to overcome obstacles.

Common Challenges:

• Adhering to corporate guidelines while maintaining local relevance.
• Managing royalty payments during slow seasons.
• Resolving conflicts with franchisors or other franchisees.

Solutions:

• Communicate openly with your franchisor to address conflicts.
• Maintain consistent quality and explore ways to diversify revenue streams.
• Network with other franchisees for advice and shared strategies.

Success as a franchisee is all about adaptability and collaboration.

Conclusion

Buying a franchise is a major commitment that demands careful planning and in-depth research. By following these seven key steps—understanding the franchise model, selecting the right opportunity, reviewing the Franchise Disclosure Document (FDD), budgeting strategically, ensuring legal compliance, assessing support systems, and setting long-term goals—prospective franchisees can maximize their chances of success.

Need help streamlining the design and layout of your franchise? Contact NY Engineers to access expert franchise solutions tailored to your business.

Take the first step toward building your franchise empire today!