By: Jack Findaro, Project Development Director at Visa Franchise
At Visa Franchise we focus on helping our clients find and analyze the best franchise investments for them and their family based on their own unique profile. We specialize in helping foreign nationals find the best franchise investment that will qualify them for an EB-5, L-1, or E-2 investor visa. While the research and analysis service that we provide is important in finding the right franchise, it is also important for our clients to understand the full process and steps it takes to become a franchisee. Therefore, we have outlined below the typical process and steps that are necessary during the franchise review process in order to help the individual investor make an educated and informed investment decision. Here we would like to note that not every franchise will follow the same exact steps and order, though each franchise is likely to have a process that is quite similar.
Step 1: Definition of the Investor and Franchise Profile
Before a franchise search and analysis can even begin, a potential franchise investor needs to understand their profile in order to set the base from which to analyze potential franchise investments. Important factors to consider are investment level, desired involvement in the business, industries of interest, return on investment goals, and desired territory or area to locate, among others. These factors will help the potential franchise investor narrow down their list of potential options for investment. Additionally, if the individual is a foreign national looking to do an EB-5, L-1, or E-2 investor visa, then they will also need to ensure that the franchise has all the required characteristics to qualify them for one of those investor visas. Once this initial work is complete, then the individual can begin analyzing the franchise investment options that best fit their profile.
Step 2: Analyze the Options that Best Fit the Investor’s Profile
Once the investor’s profile is figure out, they can begin to look at the franchises that best fit their profile. At this stage it is important to understand the overall business and decide whether it is of interest to them and their family. A relevant question for the investor to consider is whether they can see themselves being truly interested in the business. An investor should try to avoid investing in a franchise or industry that they have no interest in. Typically, the franchise owners with the most passion for their business or industry and are willing to work closely with the business for the first year or two are the ones who are most successful.
Step 3: Initial Introduction / Discovery Calls with the Franchisors
The initial introduction call or meeting is an integral part of the process when deciding which franchise investment is the right one. The call typically serves as the first time a potential franchisee speaks directly with someone from the franchise team. The call is basically an interview for both parties. On one hand, the potential franchise investor should be looking to understand the business, what would be required of them to run the business on a day-to-day basis, and the investment requirements to get the business up and running. On the other hand, the franchisor is typically looking to find out whether the franchisee candidate is qualified for their franchise. Here are some key questions the potential franchise investor should consider before the initial call. Additionally, here are the most important questions to keep in mind throughout the discovery process. Each franchisor is different though they will typically try to see if the potential franchisee candidate shares the same characteristics of their most successful franchisee owners. Franchisors are selective as they need to make sure that only well-qualified franchisees enter their franchise system and uphold the brand standards of the franchise. At the end of the day, entering in a franchise agreement needs to make sense for both the franchisee and franchisor as each one is committing to a long-term relationship usually lasting a duration of 10 years.
Step 4: Submission of Franchise Application
Many franchisors, especially the more established ones, will ask the potential franchise investor to complete a franchise application. The application is typically only a few pages containing a number of questions regarding the profile and personal finances of the applicant. The franchisor requests this information to ensure that the potential franchisee meets the minimum requirements for the franchise before they continue with the process. This saves both the potential franchisee and franchisor time by verifying that the requirements are met before moving further in the process.
Step 5: Review of the Franchise Disclosure Document (FDD)
Once the franchisor approves of the franchise application, they will normally send the franchisee applicant the franchise disclosure document, or otherwise known as an FDD. The FDD is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process. It provides information about the franchisor and franchise system to the franchisee. As all franchises are regulated by the Federal Trade Commission (FTC) they are required to have this document to present to potential franchisees. The FDD is routinely 200 pages or more containing a lot of very relevant information on the franchise. Every potential franchisee has the opportunity to review the document for a minimum of 14 days before signing. The franchisee applicant will have time to reach out to the franchisor and ask any questions they might have regarding the document. As the document is legal in nature and quite specific to the franchise industry, we at Visa Franchise strongly advise all of our clients to have a specialized franchise lawyer review the document in order to fully understand it before signing the agreement.
Step 6: Introduction to Current Franchisees
A major benefit of investing in a franchise is the chance to speak with current franchisees that have already gone through the same franchise application process and have already opened their own unit. The franchisor will provide the potential franchisee with the contacts to current franchisees so that the investor will have the opportunity to speak with them before deciding to invest in the franchise. During the conversations the potential franchisee will have the chance to ask many questions of the franchisees in order to better understand how it is to be a franchisee in the franchise. The franchisees are usually quite candid in these conversations by letting the potential franchisee know what they like and do not like about the franchise. These conversations are very valuable to the potential franchisee before deciding on the investment as they provide an inside look at the franchise from the prospective of a franchisee currently operating.
Step 7: Invitation to Discovery Day
Typically, after the prospective franchisee has had a few initial calls or meetings with the franchisor and a chance to review the FDD, they are invited to the corporate headquarters to have an in-depth look at the company and meet the management team. Discovery Day is typically a one day event where the franchisor will host multiple franchise candidates at the same time in order to discuss the franchise business and support they offer in-depth. It is a great opportunity for the potential franchisee to ask more detailed questions and meet the management team that they will be working hand-in-hand with throughout the franchise agreement. Additionally, franchisors benefit by having a final review of their franchisee candidates before deciding whether they would be good fits for the franchise.
Step 8: Decision to Invest
Finally, the time comes for the prospective franchisee to decide whether or not they will invest in the franchise and become a franchisee. When it comes the time to decide, the investor should have all of the necessary information in order to make an informed decision. The franchisor, current franchisees, the investment advisor, and franchise attorney are all resources they can reach out to if they have any remaining doubts or questions before making the decision. Once prospective franchisee decides to invest, they would sign the FDD, send it to the franchisor, then pay the initial franchise fee.
Step 9: Finding the Location and Signing a Lease
After signing the FDD and paying the franchise fee, the new franchisee will begin to find a site location with the help of the franchisor and their network of brokers. While the exact location for service-based franchises might not be so important, it is for many franchises in the food or retail space, where location is vital to their success or failure. The franchisor’s experience should be able to indicate what characteristics are required for a location in their franchise. The franchisee will work with the brokers to find potential locations that they will then submit to the franchisor for approval before negotiating and signing the lease. The expertise of the franchisor can prove vital during the lease negotiation to ensure the franchisee obtains a fair lease.
Step 10: Development of the Unit
Once the lease is negotiated and signed, the development phase begins. Here, some franchisors will offer a turnkey or project management role where others will offer their contacts such as architects, suppliers, and contractors that the franchisee will then have to manage. Franchises offer a wide range of support during the development phase, so it is important for the franchisee to understand how the franchisor will support them during this phase before signing the FDD or any supplemental agreements.
Step 11: Training
Before development is complete, the franchisee will undergo training with the franchisor. Typically, this training will take place at the franchisor’s headquarters as well a few days at the franchisee’s unit. The training period prepares the franchisee to hit the ground running as soon as their unit is ready to open. Additionally, the franchisee will typically hire and train employees with the help of the franchisor before opening their doors for business.
Step 12: Grand Opening and Commencement of Operations
With their unit fully developed and training complete, the franchisee is ready to open their business and begin operations. From this point forward, the success and failure is largely in the hands of the franchisee. It is important to follow the proven and time-tested formula the franchisor has created and continues to adapt. The franchisee can and should utilize the franchisor as well as the franchisee network for any questions or doubts they have during the course of their business. At the end of the day, the entire franchise system benefits when each individual franchisee is successful.
The franchise industry is exciting and full of opportunity for entrepreneurs to invest in proven ideas and business models. The knowledge and support that an individual gains from investing in a franchise is extremely valuable, especially for individual investors entering a new industry or foreign nationals moving to the U.S. through an EB-5, L-1, or E-2 qualifying franchise investment. In terms of timing, the process up to signing the FDD can take anywhere from one month to longer, depending on how quickly the individual decides to move forward in the process. From the time the FDD is signed, the training and development phase can take anywhere from three to nine months, depending on the type of franchise. We at Visa Franchise are here to lend our services and industry expertise to help simplify the process for individuals and their families looking to invest in a franchise. We look forward to assisting in any way we can during the process. Best of luck on this exciting journey!
About the Author:
Jack Findaro is the Product Development Director at Visa Franchise. He and his team focus on the research, analysis, due diligence, and ongoing relationships for the different franchises and businesses in Visa Franchise’s portfolio. Before Visa Franchise, Jack worked at Miami-based global franchise company Restaurant Brands International, parent company of global iconic brands such as Burger King, Tim Hortons, and Popeyes. He worked within various departments, including Global Finance, Investor Relations, and Global Development. His experience at Restaurant Brands International has enabled Visa Franchise to provide deep insights to their foreign national clients, many of whom are interested in investing in a franchise in order to obtain their investor visa for themselves and their family.