(Currently Reading) Franchising Your Business: Begin with the End in Mind
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Franchising Your Business: Build a Rock-Solid FDD and Legal Foundation
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Franchising Your Business: Competitively Position Your FDD
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Franchising Your Business: Adopting the Right Growth Mindset
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Franchising Your Business:
Begin with the End in Mind
Winning strategy #1 is beginning with the end in mind. It’s about understanding the pathway for success and developing a clear vision of what franchising your business, and franchise success should look like for you. It’s about the KPI’s, milestones, and indicators that you need to be aware of to make sure you’re on the right track? And most importantly, it’s about understanding the best strategies for making the transition from successful business owner to thriving franchisor.
As a new franchisor, the best way to ensure the long-term success of your new franchise system is to begin your journey with the end in mind.
While it’s important to focus on accomplishing the immediate legal and organizational steps that every new franchisor needs to take to get started, you should also make time to define what long-term success will look like for your brand by asking the following questions:
- What are the legal steps that need to be taken care of?
- How do you know if you’re legally protected as a franchisor?
- Is your franchise competitively positioned?
- What don’t you know about franchising?
- What should you know?
- How can you learn more?
When thinking about the future of your franchise, try imagining that a private equity firm or investor group has shown interest in your brand five years from today. What qualities would they look for that would seal the deal?
Your answer should reveal the qualities you’ll need to establish in your franchise system early on. Taking these steps will allow you to get a head start on future success – and help you be sure you’re ready when big opportunities present themselves in the future.
Legally Protect Yourself
Because of the potential risks associated with failing to take the proper legal precautions when franchising your business, it’s critical to work with an experienced franchise attorney throughout your entire franchising journey – but especially when you’re just getting started.
In addition to complying with federal and state regulations as a franchisor, the legal structure of your entire franchise system must adhere to a variety of contract and franchise laws while incorporating litigation (and litigation avoidance) strategies to make sure you’re protected from liability and other penalties. Establishing a new franchisor entity and protecting your brand’s trademarks is also critical to the success and protection of your franchise system.
Franchising Corporate Structure
As a successful business owner, it’s likely that you already have an established corporate entity under which you operate. To make sure your franchise system is legally protected, however, it’s important to establish a separate franchisor entity under which you will sell franchises, support franchisees, receive franchise fees and royalties from franchisees.
Establishing the right corporate structure for your franchisor company can help insulate your business from legal liabilities, and make sure it’s compliant with state and federal franchise laws.
Franchise Disclosure Document (FDD) Development
As one of the foundational legal documents underlying every franchise system, the Franchise Disclosure Document (FDD) plays a significant – and ongoing – role in every franchise.
Containing 23 legal disclosures mandated by the Federal Trade Commission’s Franchise Rule, franchisors are legally required to provide their FDD to prospective franchisors at least 14 days before the sale of a franchise.
As a franchisor, one of your primary goals should be recruiting qualified franchisees and making them part of your franchise system. A properly-prepared FDD should comply with federal franchise laws while also communicating the value of your brand to prospective franchisees.
Franchise Agreement Development
When dealing with private equity teams that are considering investing in franchisors, some of the most common discussions are centered around the legal enforceability of a franchisor’s franchise agreements and how those agreements are structured.
If your legal framework and franchise agreements are prepared properly and provide the right legal protections – that is, not only by protecting your brand but also by allowing legal flexibility for future growth and opportunities – funders are likely to view your franchise as a valuable and worthwhile investment.
Your franchise agreement should include strong legal protections for your brand while also communicating the brand standards and obligations you set for franchisees. The agreement should also include a noncompete clause, information about fees and royalties, and address other important legal points that are common to franchising.
Because franchising laws and regulations vary by state, it’s important to have your franchise agreements prepared by an experienced franchise attorney to ensure legal compliance and best practices within the franchising industry.
Trademarks are critical to franchising. As a franchisor, the most important right you’ll be granting to franchisees whenever you sell a franchise is a license to use your trademark to identify and operate their franchised location. Because of that, your brand’s trademarks must be properly registered with the U.S. Patent and Trademark Office and therefore legally protected.
To legally protect your brand from potential liabilities associated with your trademarks, it’s often a good idea to establish a trademark holding company that is separate from your franchisor entity. The new holding company will then license your trademarks to your brand, helping to insulate your brand from future legal issues should they arise.
Because the trademark application, registration, and protection processes are complex and research-intensive, it’s important to seek the advice of a qualified attorney to avoid potentially costly mistakes.
Work With a Franchise Lawyer
As a new franchisor, it’s important to exercise caution before working with all-in-one “franchise development companies.” These companies sometimes repackage and resell outsourced legal services while claiming they are provided by in-house counsel. Beyond the ethical implications associated with such practices, if future legal issues arise from those services, franchisors could find themselves unprotected and without recourse due to the indirect nature of the relationship between the franchisor and the lawyer that prepared the documents.
Because of those risks, it’s a good idea to work directly with an experienced franchise attorney. When seeking a qualified attorney, make sure to look for a legal team that can not only advise you about legal protections but also understands franchise development best practices. This can include options for structuring your business, positioning fees and royalty structures competitively in your agreements, best practices for working with brokers, structuring territories, preparing your Item 19 financial performance representations and more.
Develop Your Franchise Sales Strategy
A common mistake among new franchisors is forgetting to develop a franchise sales strategy once their FDD is issued to attract qualified franchisees to their business.
In addition to building a franchise sales website where prospective franchisees can learn more about your brand’s advantages, unit-level economics, and your “Why You, Why Now,” it’s important to establish a sales strategy with your corporate sales team to make sure you’re making the most of every opportunity to sell a franchise.
Often, a franchise sales strategy will include five parts: establishing leads from interested prospective franchisees, having a member of the corporate team speak with interested franchisees and disclose the FDD to them, providing due diligence and validation for franchisee candidates, hosting discovery days, and ideally signing a franchise agreement and selling a franchise.
It’s important to remember that franchise laws and regulations vary by state. Because your sales strategy must be legally compliant wherever your brand sells franchise opportunities, it’s a good idea to work with a franchise attorney to navigate the laws of any state your franchise operates in when developing your sales process.
Franchise Brand Story
One of the most important components of any winning franchise sales strategy is building a compelling brand story that will attract the attention of the right franchisees.
Your brand story should convey the advantages of your franchise system through a “Why You, Why Now,” letting prospective franchisees know why now is the best time to buy a franchise from you. Your brand story should also include information about the franchise’s purpose, opportunities and transformation over time from a small business to a franchise system.
Support Your Franchisees
As a franchisor, your franchisees can only be as good as the support you provide them. Because of that, it’s critical for new franchisors to offer strong support to their franchisees and effectively communicate the brand’s standards, operations, and other policies to them in a way that is clear and consistent.
One of the best tools available for franchisors to communicate their brand standards, operations, and policies to franchisees is the franchise operations manual. Often, they are prepared by franchisors with a mindset of growth and continuous improvement over time.
Essentially the blueprint for the entire franchise system, a well-prepared operations manual should organize, document, and communicate information about pre-opening, training, operational requirements, systems and procedures for franchisees, as well as the steps for establishing and running a franchised location successfully.
In the past, operations manuals were giant printed books. Today, however, franchisors often get creative with interactive digital or video formats. No matter which format you choose, it’s important to update your operations manual as your franchise grows and to make sure the most up-to-date version is readily available to franchisees.
Build a 5-Year Franchise Growth Strategy
While it only takes between 90 to 120 days to become a new franchisor, it’s important to make sure your vision for your franchise system extends beyond the near future. Once you’ve made sure your brand’s infrastructure is legally sound, one of the best ways to establish your long-term goals is to create a five-year success plan – anticipating what it will take to go from a small business owner today to a thriving franchise owner in the future.
Years 1 - 2
The first two years of your franchising journey should be focused on seasoning your business. During this time, you’ll focus on the soft launch of your franchise brand, growing your organic reach, and continuing to build and develop your brand.
During the second half of your first year, it’s also wise to get involved with broker organizations, build durable assets and establish your sales website and process. As a new franchisor, you’ll also want to onboard and over-support your first franchisees – because their success will determine your success.
Years 3 - 5
During years three to five, you’ll want to focus on acceleration and sustainable growth. During this time, make sure you’re focusing on establishing strong financials for an impressive FDD Item 19, in addition to building a compelling brand story and franchisee validation.
It’s also a good idea to enhance broker engagement during this time, developing relationships and generating new sales leads.
Find a Supportive Franchise Community
Beyond making sure your new franchise is legally protected and that you’ve established your business with the end in mind, finding a supportive community of franchising industry professionals can be enormously beneficial for new franchisors.
Attending educational industry events and workshops, as well as networking with franchise brokers, can help you make important connections and gain valuable insights into the franchising world.
We’ve also launched a new digital community called FranX, a franchise growth accelerator and community to help franchisors grow their brand. Featuring masterclasses taught by franchising experts, interviews with successful franchisors and industry professionals, business resources, educational content, and a supportive Facebook community, franchisors at every level in their franchising journey will find something useful on FranX.
If you’re ready to take the next step in franchising your business, we’re here to help. Contact us to learn more about how our team can help you establish the right legal foundation for your new franchise.