Buying a Franchise in CA: 10-Step Roadmap to Purchasing

Thinking about starting a franchise in California? It’s an exciting opportunity, but it can also feel overwhelming. You’re not alone—California is a hotbed for new businesses, and franchising offers a way to start with a proven model. But before you dive in, there’s a lot to consider. This guide will walk you the 10 steps of purchasing a franchise in California. Let’s make it simple so you can feel confident in your next move.

Franchising sounds great—brand recognition, a business model that works, and support from the franchisor. But is it the right fit for you? Ask yourself:

• What skills and experience do I bring to the table?

Before choosing a franchise, get to know the industry:

Not all franchises are created equal. You need to dig deep into the franchisor’s history, financials, reputation, and litigation records. Assess the leadership team’s expertise and track record. Speak with current and former franchisees to gain firsthand insights. 

Unfortunately, some businesses try to sidestep franchise laws by misclassifying themselves. Watch out for:

• Businesses that claim to be licensing agreements but meet the definition of a franchise (use of a brand, required fees, and a prescribed business system).

The Franchise Disclosure Document (FDD) provides key details about the franchisor and is required by both federal and California state laws, your can register for free and search them here. The document contains 23 items that cover various aspects of the franchise.

• Franchisor’s Experience (Item 2) – Who runs the company and what’s their track record?

The franchise agreement is a legally binding contract outlining the relationship between the franchisor and franchisee. Key provisions typically include 

• Territory Rights – Are you the only franchise in your area, or can the franchisor open another one nearby?

Franchise owners must obtain the necessary licenses and permits, including federal, state, and local business licenses. Compliance with zoning laws, environmental laws, health and safety permits is essential to avoid fines or business closure. Missing a required permit can shut down your business, so double-check everything.

Even though franchises come with a set model, you still need a business plan to get financing and stay on track. A solid plan sets you up for long-term success and should include:

• Executive Summary – Your franchise concept and goals.

Starting a franchise requires a significant financial investment. Consider your financing options:
• Franchisor Financing: Some franchisors offer in-house financing or partnerships with lenders to help franchisees cover startup costs. 
• Small Business Administration (SBA) Loans: The SBA’s 7(a) loan program is a popular option for franchise financing, offering competitive interest rates and long repayment terms.
• Traditional Bank Loans: Many banks finance franchises, especially those with strong brand recognition. Be prepared to provide a detailed business plan.
• Alternative Lenders: Online lenders and peer-to-peer lending platforms offer quick access to capital, though interest rates may be higher.
• Investor Partnerships: Bringing in a partner can help share the financial burden and expertise.
• Retirement Fund Rollover (ROBS): Allows you to use retirement funds to finance your franchise without incurring early withdrawal penalties.

Consult a financial advisor before using this method. Know your budget and stick to it—starting with too much debt can put you in a tough spot.

Once you’ve selected your franchise and secured financing, follow these steps to get started:
• Register Your Business Entity: Most franchises operate as LLCs or corporations to protect personal assets. File formation documents with the California Secretary of State.
• Obtain an EIN: Apply for an Employer Identification Number (EIN) from the IRS for tax purposes.
• Secure Necessary Licenses and Permits: Research city, county, and state business licensing requirements. Some industries, like food service or childcare, require special permits.
• Lease or Purchase a Location: If required, secure a business location that meets the franchisor’s specifications.
• Complete Franchise Training: Attend the franchisor’s required training programs to learn the business model, operations, and best practices.
• Hire and Train Staff: If your franchise requires employees, recruit and train them according to the franchisor’s guidelines.
• Launch and Market Your Business: Follow the franchisor’s marketing plan, participate in promotional activities, and engage in local advertising.

Franchising in California offers a path to business ownership with built-in support, but it also requires thorough research, financial planning, and legal compliance. Before committing, evaluate opportunities carefully, consult professionals, and ensure the franchise aligns with your long-term goals. With the right approach, you can build a thriving business within a proven system.