Learn how long it takes to franchise a business, and find out steps and timing for starting a successful franchise system.
Your business is successful, you're evaluating expansion options, and franchising may be the answer. If franchising is right for you, how long will it take you to franchise your business?
Timelines can vary but franchising a business generally takes between 90 and 120 days.
During this time period new franchisors should expect a lot to be happening. Franchising the right way requires a multi-step development process that involves a number of tasks and milestones occurring simultaneously.
Below we identify the major steps involved in franchising and the timing involved. Because many of these steps take place at the same time, it’s important that you work with an experienced legal team that’s extensively experienced in developing franchise systems.
For new franchisors, one of the first steps of the franchising process will vary based on whether or not your brand’s trademarks are registered with the U.S. Patent and Trademark Office (USPTO). If they’re not, one of the first steps your legal team will take is to evaluate them and determine whether they’re protectable and can be registered with the USPTO.
Once your legal team has determined that your trademarks are protectable, they will guide you through the process of filing a trademark application with the USPTO. Because obtaining a registration for your trademark can take over six months, the application should ideally be filed within the first month of the franchising process. Since the approval process can be lengthy, it’s possible that new franchisors might end up selling their first franchises prior to the registration of their trademark.
Franchisor Entity Setup
As a successful entrepreneur, you should already have a corporate entity that your business operates under. During the franchising process, however, new franchisors should plan to work with the legal team to set up an additional corporate entity called a franchisor entity. This is the entity under which you will offer and sell franchises, support franchisees and receive the initial franchise fee and future royalties.
Franchise Disclosure Document
Throughout every step of the franchising process, your legal team will also be working to prepare your Franchise Disclosure Document (FDD). In addition to being an important legal document, the FDD is also the hub of your franchise offering.
Under federal franchise law, franchisors are required to provide prospective franchisees with the FDD prior to selling a franchise. The FDD contains 23 disclosure sections and provides prospective franchisees with important information about the franchisor, the franchise opportunity being offered, financial statements, audit documentation, fees and royalties, definitions of legal relationships and more.
Registering the Franchise
Once your FDD is complete and you’ve determined which states you plan to sell franchise opportunities in, you may need to register the franchise. In addition to issuing the FDD at the federal level, some states (referred to as the Franchise Registration States) also require new franchisors to register the FDD with state regulators prior to offering or selling a franchise. In these situations, registration can take between 35 to 90 days. Because the legal requirements, processes and fees for registering the FDD can vary by state, it’s important to work with an experienced franchise attorney to make sure all filings are legally compliant.
Beyond the legal aspects of setting up a new franchise, new franchisors also need to make sure their system is positioned for success. While the legal team is working to ensure all legal requirements are met, you should also plan to work with your franchise development team to establish a strong operational system that will enable you to train and support future franchisees. Because a franchise’s operational systems must adhere to both federal and state regulations, the franchise development and legal processes should take place simultaneously.
One of the first steps new franchisors will take during the development process is reviewing the operations of similar competitor franchise systems and conducting a competitive analysis. This can help to identify what sets your system apart from competitors and determine best practices for your franchise.
The competitive analysis process includes working with the development team to compile data about competitors' business structures and analyze their fees, royalties, advertising expenses, training and support, and more. You’ll then use that information to determine the best development strategies for your own franchise, including growth through individual or multi-unit sales, your initial franchise fee, royalty structures, and other significant underpinnings of the franchise system.
While working with your development team to analyze competitors and establish best practices for your franchise, new franchisors should also plan to start developing their franchise operations manual.
The operations manual is a confidential document that franchisors provide to franchisees to support and guide them through the franchise system’s operations processes. Essentially the blueprint for the franchise, the operations manual communicates important information to franchisees about brand standards, operating requirements, supplier requirements and more.
Traditionally, operations manuals have been provided to franchisees as printed documents or digital files. Recently, however, franchisors have been getting more creative with interactive formats like videos and secure online forums available confidentially to franchisees. During the development process, you’ll select the best format for your operations manual to support your franchisees.
In addition to establishing best practices and developing an operations manual, new franchisors also need to make sure they’re developing smart sales strategies to set their future franchisees up for success.
As a new franchisor, your sales strategies don't need to be advanced. Often, the best and most cost-effective sales strategy for new franchisors is to focus on organic growth by selling franchise opportunities to franchisee candidates that are already organically aware of and attracted to your brand.
During the sales process, it will be important to present franchisee candidates with substantive content that extends beyond the FDD. At minimum, new franchisors should make sure to add a franchise sales page to the brand’s website where they can share the brand story and discuss the unique value of the franchise offering. As the franchise system grows, plan to update the website with more developed content.
Because every franchisor is legally required to include financial statements in their FDD, establishing your franchise’s accounting system is critical to selling franchise opportunities in the future. Parallel to working with your legal and development teams, new franchisors should also work with an accountant to make sure the franchise’s finances are compliant with regulations.
Tax Information and Filings
During the process of establishing a new franchisor entity, your legal team will confer with your accountant to select the best type of legal entity for the business. The accountant will also help you establish a tax identification number and determine the appropriate tax filings. Other considerations during the accounting process might include whether or not to create an intellectual property holding company that will own and license your brand’s trademarks and other intellectual property assets to legally insulate them.
Opening a Bank Account
Once you’ve established a new franchisor entity with your legal team, the next step will be working with the accountant to open a bank account. The standard rule regarding financial statements requires franchisors to include three years of audited financial statements in their FDD. Because new franchises that haven’t been in business for three years are unable to meet that requirement, however, there are alternatives.
Your accountant will guide you through the process of opening a bank account for your new franchisor entity. After you’ve deposited funds into the account, the accountant will prepare an opening balance sheet. They may also need to take additional steps depending on where you intend to sell franchise opportunities.
Opening Balance Sheet
For new franchisors planning to sell franchise opportunities in any of the Franchise Registration States, it’s important to note that the opening balance sheet must be audited before the franchise can be registered and the FDD can be issued. In these situations, the accountant will work with you to prepare an opening balance sheet and schedule an audit to remain compliant with state regulations.
At the end of the franchising process, typically within 90 to 120 days, your new franchise’s FDD will be issued and you will be able to legally start offering and selling franchise opportunities to prospective franchisees. However, new franchisors shouldn’t expect their work to stop there.
Nobody wins at franchising in a year. Because of that, new franchisors should plan to invest resources, time, and effort into their brand’s evolution while developing strategies for success over time.
As a new franchisor, you’ll want to make a Five Year Success Plan to ensure that you’re setting your franchise system up for success. It’s a good idea to focus your first year in business on organic growth, making connections and hopefully selling franchise opportunities to well-qualified franchisee candidates. During the second year, plan to focus on seasoning your franchise offering by building PR strategies, further developing the brand story, and enriching the franchise website and presentations.
Finally, years three to five are called acceleration years – during that time frame, franchisors should expect to take their franchise system to the next level.
By maintaining a realistic mindset and working with an experienced legal, development, and accounting team, new franchisors can navigate the franchising process with ease and position themselves for success in the future of their franchising journey.