Buying a franchise starts with research and ends with signing a franchise agreement, but the process between those two points involves legal review, financial planning, and direct conversations with people already running the business you’re considering. The entire timeline typically runs three to six months, depending on how quickly you move through due diligence and secure financing. Here’s how each stage works.
Find Franchise Opportunities That Fit
Before you evaluate any specific brand, get clear on your budget, your skills, and how involved you want to be day to day. Some franchises expect you behind the counter full time. Others are designed for semi-absentee owners who hire a manager and check in weekly. The investment range across the franchise world is enormous, from under $50,000 for a home-based service business to well over $1 million for a hotel or full-service restaurant.
You can find opportunities through franchisor websites, franchise expos, broker networks, and by simply walking into local franchised businesses and asking about the ownership experience. Franchise handbooks and directories list hundreds of brands organized by industry, investment level, and growth rate. If you work with a franchise broker, keep in mind they earn a commission from the franchisor when you sign, so verify everything they tell you independently.
Submit an Application
Once you’ve identified a brand you’re interested in, you’ll fill out an application. This is a two-way screening: the franchisor wants to know your financial position, professional background, and why you’re interested, while you’re signaling serious intent. Most franchisors require a minimum net worth and a certain amount of liquid capital (cash or assets you can convert to cash quickly). These thresholds vary widely by brand.
If the franchisor accepts your application for consideration, you have the right to receive a copy of the Franchise Disclosure Document, the single most important piece of paperwork in this entire process.
Read the Franchise Disclosure Document
The Franchise Disclosure Document (FDD) is a standardized legal document the FTC requires every franchisor to provide. It contains 23 numbered items covering everything you need to evaluate the opportunity. Under the FTC’s Franchise Rule, you must receive the FDD at least 14 days before you’re asked to sign any contract or pay any money to the franchisor or its affiliates. That 14-day window exists specifically so you have time to review it carefully.
Several items in the FDD deserve close attention:
- Items 5 through 7: Fees and costs. These lay out the initial franchise fee, what you’ll pay for inventory, signage, equipment, leases, and ongoing costs like royalties and advertising contributions.
- Item 3: Litigation history. This tells you whether the franchisor or its executives have been convicted of certain crimes or have been found liable or settled lawsuits related to the franchise relationship.
- Item 4: Bankruptcy. Discloses whether the franchisor, its affiliates, or executives have filed for bankruptcy.
- Item 11: Training. Describes what training you’ll receive, who pays for it, whether on-site assistance is available, and how much time is spent on technical skills, business management, and marketing.
- Item 17: Renewal, termination, and transfer. Explains what happens when your agreement expires, what grounds the franchisor has to terminate you, and what restrictions apply if you want to sell your franchise later.
- Item 19: Financial performance representations. Contains any claims the franchisor chooses to make about sales or earnings. Not all franchisors include projections here, and if they don’t, that absence is worth noting.
The FDD can run several hundred pages. Read all of it, including the exhibits and the actual franchise agreement attached at the end. Have an attorney experienced in franchise law review it with you. The franchisor’s disclosures can change between when you first receive the FDD and when you sign, so ask for any updated information before closing.
Understand the Full Cost Structure
The initial franchise fee is just one piece of what you’ll spend. Total startup costs include build-out or renovation of your location, equipment, initial inventory, insurance, permits, and working capital to cover expenses before the business becomes profitable. The FDD’s Item 7 provides a range for total estimated initial investment, which is one of the most useful numbers in the document.
After you open, you’ll owe ongoing fees. Royalty fees are a fixed percentage of your gross revenue paid to the franchisor, commonly around 4% to 8%. You’ll also typically contribute to a marketing or advertising fund, often around 2% of revenue, which the franchisor uses to run national or regional advertising campaigns on behalf of all franchisees. These fees come off the top of your revenue, not your profit, so factor them into your financial projections carefully. A business generating $500,000 in annual revenue with an 8% royalty and a 2% marketing levy is sending $50,000 back to the franchisor before covering any of its own expenses.
Talk to Current and Former Franchisees
This step is the most valuable part of your due diligence, and the one most buyers don’t do thoroughly enough. The FDD includes a list of current and former franchisees with contact information. Call them. The FTC specifically recommends talking to these owners rather than relying on information from the franchisor or a broker alone.
Ask questions that get at the real economics and day-to-day reality of the business:
- On finances: Have you recouped your initial investment? How much working capital did you budget and for what period? What are the costs of lead generation programs, and are they worthwhile?
- On time commitment: How many hours per week do you spend on the business? Has that gone up or down since you started?
- On franchisor support: Did the initial training adequately prepare you? Did the franchisor give you the support you needed during your first year? What do you wish you knew before you began operations?
- On the ongoing relationship: How would you rank the ongoing support on a scale of 1 to 5? Has anything been lacking? How could the franchisor improve?
Pay attention to patterns. If multiple franchisees say the training was insufficient or that the franchisor overpromised on marketing support, that’s a signal. Also check whether consumers or franchisees have filed complaints with franchise regulators, Better Business Bureaus, or local consumer protection agencies.
Attend Discovery Day
Most franchisors invite serious candidates to their headquarters for a “Discovery Day,” where you meet the leadership team, tour operations, and get a firsthand look at the company culture. This is your chance to evaluate the people behind the brand. Pay attention to how organized and transparent they are. Ask about the qualifications of trainers, what ongoing support looks like after year one, and whether the franchisor leverages the collective buying power of the system to negotiate better pricing on supplies.
Discovery Day is also the franchisor’s final evaluation of you. They’re deciding whether you’re a good fit for the system, so come prepared with specific questions that show you’ve done your homework.
Secure Financing
Most franchise buyers don’t pay entirely in cash. The SBA 7(a) loan is one of the most common financing paths for franchise purchases. The SBA maintains a directory of franchise brands that have been pre-approved for SBA lending, which can simplify the process. Specific loan terms are negotiated between you and a participating lender, but the SBA requires that your business be creditworthy and that you demonstrate a reasonable ability to repay.
Beyond SBA loans, franchise buyers commonly use conventional business loans, home equity lines of credit, or retirement account rollovers (sometimes called ROBS, or Rollovers for Business Startups, which let you use retirement funds to capitalize a new business without early withdrawal penalties). Some franchisors offer in-house financing or have relationships with preferred lenders. Whatever route you choose, have your financing confirmed before you reach the signing stage.
Negotiate and Sign the Agreement
Franchise agreements are largely standardized within a given brand, so there’s less room for negotiation than in a typical business deal. That said, some terms may be flexible, particularly around territory size, renewal conditions, or the timing of certain fees. Your franchise attorney can identify which provisions are worth pushing on.
Before you sign, confirm that no disclosures in the FDD have changed since you first received it. Once you sign the franchise agreement and pay the initial franchise fee, you’re locked into the terms for the duration of the contract, which typically runs 5 to 20 years depending on the brand. Understand what renewal looks like, what it costs, and whether the franchisor can change fee structures or operational requirements at renewal.
What Happens After You Sign
Signing the agreement triggers the pre-opening phase. You’ll go through the franchisor’s training program, which can range from a few days to several weeks and may take place at headquarters, at an existing location, or at your own site. Simultaneously, you’ll be securing a location (if applicable), ordering equipment, hiring staff, and working through the franchisor’s opening checklist.
Budget for a ramp-up period where the business operates at a loss. The working capital estimate in Item 7 of the FDD gives you a starting point, but franchisees consistently report that having more working capital than the minimum estimate provides a significant cushion. Ask existing owners how long it took them to reach profitability and plan your personal finances accordingly.