Buying a Franchise: How the Process Works, Step by Step

The steps of buying a franchise at a glance

Most franchise purchases follow the same eight steps, and federal rules fix the order of the last few.

Source: FTC, A Consumer’s Guide to Buying a Franchise; FTC Franchise Rule, 16 CFR 436.2 and 436.5; SBA, Buy an Existing Business or Franchise.

Steps 1 and 2: set your budget, then research categories and brands

Start with your own numbers, not a brand. The FTC’s consumer guide to buying a franchise opens with two blunt questions: how much money do you have to invest, and how much can you afford to lose? Add the hours you can give and whether you want to work in the business or manage it.

Keep three figures apart: the initial franchise fee, the full opening cost in FDD Item 7, and the liquid capital a franchisor wants to see, which is a qualification minimum, not a cost. Our franchise costs and funding section and our guide to franchises under $100k show how those numbers interact.

Then choose a category before a brand, since home services, senior care and food ask for very different skills and hours. The FTC suggests checking local demand and competition. Browse franchise ideas by category, then build a short list.

Step 3: get the FDD and read the Items that matter

The Franchise Disclosure Document is the core of your research. Under the FTC Franchise Rule, 16 CFR 436.2, the franchisor must give you its current FDD at least 14 calendar days before you sign a binding agreement or pay any money. The document has 23 Items set by 16 CFR 436.5. Read these first:

• Items 5 and 6: the initial fee and every ongoing fee, such as royalties and marketing funds.
• Item 7: the estimated initial investment. Plan around the high end.
• Item 11: training and franchisor assistance.
• Item 12: what territory protection you get.
• Item 19: financial performance representations, if any. Under 16 CFR 436.9 no franchise seller may give you figures that are not in Item 19.
• Item 20: outlet openings and closures, plus contacts for current and former owners.
• Item 21: the franchisor’s audited financial statements.

Step 4: validation calls with current and former owners

Owner calls are where you test everything the franchisor told you. The FTC says talking to current and former franchisees may be the most reliable way to verify the franchisor’s claims.

Use the Item 20 lists and pick names yourself, including owners who left the system. Ask what they actually spent compared with Item 7, whether they opened on time, and what problems, if any, they have with the franchisor.

Steps 5 and 6: financing and professional review

Line up money and advisers before you fall for a brand. The SBA says the maximum 7(a) loan is $5 million, and its Franchise Directory lists the brands eligible for SBA financial assistance, though a listing is not an endorsement. Item 10 shows any franchisor financing.

Then pay for independent review. The FTC says an accountant can help you understand the franchisor’s financial statements and develop a business plan, and a lawyer experienced in franchise matters can help you understand your obligations under the franchise contract. The SBA agrees.

Steps 7 and 8: discovery day and signing

Discovery day comes late, once you are down to one or a few brands. FranChoice describes it as an in-person event hosted by the franchisor at its headquarters to meet its team. Treat it as a two-way interview.

Signing has two federal guardrails. The 14-day FDD window must have passed, and under 16 CFR 436.2(b) a franchisor that unilaterally and materially changes the standard agreement must give you the revised agreement at least seven calendar days before you sign, unless the change came from negotiations you started.

How long buying a franchise takes

Expect months, not weeks, though the floor is set by law. FranNet, a franchise consulting network, says the initial inquiry and research stage can take two to five months before a decision, that start to finish takes 3 to 6 months at the fastest and more than a year at the slow end, and that most franchisees open within 3 to 12 months after signing. FranChoice says the path from first conversation to a signed agreement may take anywhere from a few weeks to several months. The legal minimum is the 14-day FDD window.

Where a franchise consultant fits, and where it does not

A consultant helps most in steps 1 to 4 and cannot do steps 6 or 8 for you. According to the FTC, a broker typically reviews the amount of money you have to invest, directs you to opportunities that match your interests and resources, and may help with applications and paperwork. Our hub on what a franchise consultant does covers the full process.

• Where it fits: building a shortlist, scheduling franchisor calls and organizing owner calls.
• Where it does not: legal and accounting review, and brands outside the consultant’s network.

The FTC notes brokers often work for franchisors and are paid only if a sale is made, so read how franchise consultants get paid and whether they are worth it before your first call, and compare networks in our guide to the best franchise consultants. If you want a shortlist built around your budget, our free franchise match quiz introduces you to a consultant. We may be paid for that introduction, as our disclosures explain.