Entities For Franchises
If you don't want to start a business from the ground up, an established brand and business model might be what you need. Find everything you need to know about franchises and LLCs below.
What is Franchising?
A franchising agreement is where one party, the franchisor, allows another party, the franchisee, to use
their trademark name and sell their products or services in exchange for a licensing fee.
As of writing, the purchasing fee for a franchise company ranges from $20,000 to $50,000, depending on their license. You’ll need a minimum capital of $50,000 to $60,000 before starting a service-based business. Meanwhile, a facilities-based company needs around $75,000 to $100,000.
It's also worth noting that you must pay franchise royalties once you start running your business. Royalty fees range from 4% to 12% of your location's profit.
Franchising vs. Other Business Types
There are plenty of reasons why most people prefer franchise businesses over startups. For instance,
starting your own company from the ground up is a risky endeavor.
You must determine what you offer for your target customer and who you'll compete with. There's also the question of whether or not they'll like your products and services. Is it unique enough to catch their attention, or is it just like any other product in the market?
Recent studies have also shown that failure rates for new startups are soaring. Roughly 20% of the new businesses launched within the country can barely survive their first year, while only around 50% of them will last up to five years.
These numbers show how difficult it is for startups to survive in today's highly competitive market. To beat the odds, you must work harder to establish your business. But if you decide to franchise a business, you'll have fewer things to worry about.
You have a tried and tested model you can follow and an established brand to use. These factors increase your chances of success exponentially.
Advantages of A Franchise Business
Aside from having higher success rates, here are a few other advantages to having a franchise business:
- Built-in Brand Awareness: Most of the time, franchise businesses already have regional or national recognition. Their established name adds value to your products and provides a certain level of buyer confidence.
- Easy Access to External Funding: Lenders are more comfortable financing franchise investments since these companies have a proven track record. You'll have a much more difficult time getting a loan for a new startup.
- No Experience Required: Franchisors don't require their franchisees to have prior experience running their own business. They provide them with all the training they need to run their operations efficiently.
Starting A Franchise
Here's how you can start your own franchise business in Nevada.
Find A Business You Like
There are plenty of franchise businesses you can invest in, from food and drinks to retail stores. Visit websites like Franchise Direct to see the different franchising agreements available.
Evaluate The Pros And Cons
Once you find a franchise business you like, you must evaluate its pros and cons. For example, is there
an existing location within your area? One city can have multiple Mcdonalds', but it would be best if
you could guarantee that your franchise location will have fewer competitors.
We also suggest you evaluate how much the franchising agreement would cost you. Aside from the initial fees we've mentioned, there are other business costs you need to consider, like marketing fees, local taxes, maintenance, and the like.
Get A Franchise License Agreement
After you evaluate the opportunities of your chosen franchising, you can start processing your license.
Typically, your franchisor should have a contract that includes all the important information about the
Before you sign it, make sure you read its condition properly. You need to know the standards your franchisor wants its franchisees to uphold.
Form A Business Entity
Depending on your franchisor, you may have to incorporate your franchise into an LLC or a corporation. Even if they don't have any requirements for incorporation, it's still vital for your franchise to have a business entity.
Why Your Franchise Needs An LLC Structure
Incorporating your franchise business into a limited liability company (LLC) provides plenty of tax breaks and other benefits. Here are some examples:
- Separate legal identities for you and your business.
- Strong corporate veil.
- Fewer legal requirements.
- Flexible ownership.
- Pass-through tax status.
With these advantages in mind, you'll be able to unleash your franchise business' full potential in no time.