Want to become a franchisee of a national brand? Here are the steps for Minnesotans

Even amid a lingering pandemic and the prospect of a recession, people are still willing to break out on their own to start their own businesses.

Some people might not realize that many McDonald's, Dairy Queens and Hallmark stores are owned by local owners, not the national corporations. It's called franchising, and it's a popular option for people who get the itch to be their own bosses.

Minnesota added 118 franchise businesses in 2021, according to the International Franchise Association Minnesota. The organization expects another 94 this year. Nationally, the franchise association expects about 17,000 new franchise locations to open this year, increasing the total to more than 792,000.

The first question to ask when deciding whether to pursue owning a franchise seems an obvious one, but it's also perhaps the most important.

Is franchising right for you? "Can you be an owner and not just a worker?" said John Francis, a franchise industry consultant based in Mendota Heights known as "Johnny Franchise."

Francis, who has run several different franchise operations, said there are thousands of franchising opportunities to meet most people's passions. But being an owner doesn't suit everyone.

If you think it's for you, the International Franchising Association (IFA) has a tool on its website to help people filter through available franchising opportunities.

Francis also suggests people check out rankings of different companies. Entrepreneur magazine, for example, has published its annual Franchise 500 list for 43 years. Other publications like the Franchise Times do similar lists. International Dairy Queen, based in Bloomington, routinely makes the top 50 of such lists.

Here are some other steps to take:

A self-assessment of your management and business skills can help determine what type of franchise to pursue. With some, you are the owner-operator. Some larger opportunities might require additional people to fill finance, operations and other positions.

Part of the self-assessment process is determining whether you want to be affiliated with a franchise that is just starting out or one that's established with hundreds of locations. People who are more entrepreneurial and want to help grow the franchiser's brand might be OK with the additional risk; others may want a proven turnkey operation.

Brian Schnell, a partner with Faegre Drinker, has specialized in franchise law his entire career, largely representing franchisers.

The franchising business isn't a democracy, he said. It's understood the franchiser can dictate how things are done throughout the system.

You want to find a situation where both sides work together and have dialogue, he said.

"A good franchisee doesn't want a vote, they want a voice," Schnell said. "A franchise system that has franchisees with voices, that listen, that's collaboration."

Part of the research that people can do themselves is to get a copy of what is known as a franchise disclosure document, or FDD. This document lays out the requirements for both parties in a franchise agreement.

The FDD has 23 sections and covers the history of the franchiser, leaders of the company, initial investment and ongoing fees required of the franchisees. It also includes the number of other franchise-owned and corporate-owned locations, financial performance, and information on renewing, cancelling or transferring your franchise.

An FDD is required before any money is exchanged, according to the Federal Trade Commission. A franchiser with locations in the state must also file the FDD with the Minnesota Department of Commerce.

Schnell recommends lining up two or more FDDs side by side to get a good grasp of the differences between franchisers. He also suggests talking with existing franchisees to hear about their experiences.

Francis said there are an increasing number of franchise brokers that can serve as a matchmaker between brands and potential franchisees.

"They'll help you find what really fits based on your skills, your financial strength, your lifestyle," Francis said. But he warns that they work on commission and don't work with all brands.

Once you've identified a target, be ready to make a decision before starting more direct discussions with a company. Franchise operators do their own qualifying of potential franchisees. The more research you've done the faster that process can go.

International Dairy Queen is more than 80 years old and has over 7,000 restaurants in 20 countries.

Jim Kerr, executive vice president for franchise development in the U.S. and Canada, said about one-fourth of the leads for new locations in the region each year come from first-time franchisees.

Like other large franchise companies, Dairy Queen has its own qualification process for potential franchisees. According to Kerr, DQ looks for prospects with quick-service restaurant experience, but has also qualified candidates from different walks of life.

"We want to make sure a franchise concept is right for candidates," Kerr said. "It involves commitment to a long-term contract that requires adherence to brand standards and requirements. And it's the name of the brand that's above the the door, and not that individual business person."

Large franchisers will provide a significant amount of support and training from the time a deal is signed through the first year or two of operation.

Franchise contracts can be complicated and franchise fees can run tens of thousands of dollars. Francis suggests finding good legal representation and good financial advisers.

Look for experts who specialize in franchise law and franchise financing and accounting, he said. Most likely, you'll need to take out a small-business loan.

In that first year as a new franchisee, trust your research, the training you've received and the model that you've bought into. Opening a franchise is usually less risky than a startup company.

A successful mature franchise business will have worked through many of the initial problems before starting to franchise the concept and has likely already worked through more problems with early franchisees.

"Implement, don't experiment," Francis said of the first year. After you've learned the ins and outs of the business from that first location, then you can start thinking about opening more locations or buying into different brands.

Finally, Francis said to celebrate the deal. Hold a grand opening.

"A grand opening is kind of a big deal," Francis said. "It really does make a difference."