HOW TO FRANCHISE YOUR BUSINESS
As a successful business owner and entrepreneur, chances are that you have thought about "franchising" and have questioned whether or not franchising is right for your business. So, what is the next step? Well, the first step in franchising your business is to adopt an "information gathering mindset" that is focused on obtaining objective information to understand franchising, learn what it takes to franchise your business, identify the common "franchise pitfalls" that must be avoided and olearn about a proven program for franchising your business. Along the way you need to know that franchising is not right for most businesses. However, for the right business - a business with well defined systems, trademarks, and a successful product or service - franchising represents a substantial vehicle for achieving multi-unit brand and business expansion.
Consistent with the required "information gathering mindset" that you must bring to the franchising table, lets review some of the basics:
WHAT IS "FRANCHISING"? At its most basic level, "franchising" is a business model and expansion tool designed to facilitate business growth and development. This growth is typically achieved in the form of the multi-unit expansion of a successful business and is grounded in the coordinated and combined efforts of both franchisor and franchisee. That is, the franchisor contributes his or her proven business model, systems, trademarks and "know how" and each franchisee contributes the capital, labor and managerial commitment necessary for multi-unit expansion. When executed properly, franchising represents a "win-win" for franchisor and franchisee alike.
WHAT DOES IT MEAN TO "FRANCHISE YOUR BUSINESS?" When you "franchise your business," as a "franchisor," you are taking your existing business and establishing the framework by which you will license and grant third party franchisees the legal right to adopt your business model, utilize your trademarks, utilize your proprietary products/services and benefit from the systems and procedures that have made your business successful.
WHAT ARE THE PRIMARY STEPS TO FRANCHISE YOUR BUSINESS? There are many steps and stages in the franchising process that we will discuss in future installments of this article, however the most basic steps involve both legal and business requirements that must be satisfied. These basic requirements, include:
1 - The Franchise Assessment - Does your Business Have what it Takes? Having a successful business is not enough. As a business expansion model, "franchising" is not right for every business and it is not right for every business owner. When making this self-assessment, some of the many factors that you should be considering include:
- Does your Business have a Successful Track Record? - Franchising should be viewed as an evolutionary step in the expansion of your business. It should only come about after you have established your business and have obtained a level of measurable and sustainable success. That is, your business must have a track record of consistently producing profits.
- Will your Business Model be Profitable for Franchisees? - Just because the business is profitable for "you" does not necessarily mean that it will be profitable for franchisees. So when making your "franchise assessment," determine how the franchise model will influence franchisee profits. Consider that on top of your existing cost structures, franchisees will have expenses in the form of royalties and other fees that they will be required to pay to you as the franchisor. Consider these additional expenses, evaluate cost savings and benefits that you may add to their operations as a franchisor (i.e., discounted proprietary products purchased in bulk, etc...) and evaluate the overall impact on franchisee profitability.
- Can your Business be Taught to Franchisees? - Always consider that prospective franchisees do not possess the skill level and experience that you have - especially when it comes to operating the business that you created. To successfully franchise your business you must ensure that you have developed business systems, procedures and methods of operation that may be successfully taught to franchisees and consistently followed by franchisees in their day-to-day business operations. Franchising favors franchisee operations that are not complex and that are broken down into clear and identifiable systems.
- Does your Business Possess a Unique Selling Point? - As a franchisor, the primary motivation and purpose in establishing a franchise system should be to expand your business and the unique products, services and/or systems that you bring to the marketplace. To create a win-win scenario, as a franchisor, you must offer your franchisee a business opportunity and competitive advantage that they could not otherwise obtain if they just started their own business. These unique factors include recognized trade name, proprietary products, proprietary services, marketing plans, operating procedures and successful business systems.
2- Legal Compliance - Preparation of your FDD. "Franchising" is an extensively regulated industry. To "franchise your business" one of the primary tasks that you must satisfy relates to compliance with both federal and state franchise regulation. Every state is different, but at the core of all franchise regulation, is the requirement that prior to offering or selling a franchise, the franchisor must prepare a "Franchise Disclosure Document" (also known as an FDD) and deliver same to the prospective franchisee. The FDD contains detailed disclosures and sections (known as "Items") designated by the Federal Trade Commission and they are focused on providing prospective franchisees with information about the franchisor, the franchise opportunity, legal obligations and rights between franchisor and franchisee and investment estimates and expenses.
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CONCLUSION: For the start-up franchisor - on the list of must do things to "franchise your business" - the planning and preparation of your FDD should be at the top. Since the FDD is a legal document that must combine and satisfy multiple federal and state regulatory requirements, it is critical that this document be prepared by an experienced franchise lawyer.
When it comes to franchising your business, there are more factors and information that you will need to know. The foregoing "factors" or information should serve as the foundation and base to build from. But critical to every stage of the "franchising process" is a mindset that requires the constant assessment of your business, the gathering of information and a careful plan that is focused on creating a franchise system that is built for long term success.
NEXT INSTALLMENT: In the next installment "How to Franchise Your Business - Part 2: Are You Ready to Franchise" we will discuss the franchisor mindset, your business goals and whether or not franchising is right for you.