Franchise FAQs

What is a franchise?

In broad terms, a franchise is a means of delivering products or services that involves a franchisor, who develops the brand’s trademark or trade name and a system for doing business, and a franchisee, who typically pays initial and ongoing fees for the right to do business under the franchisor’s name and system. Business Format Franchising is the most common franchise structure, where a franchisor provides a complete operating system for the business to the franchisee. In exchange, the franchisee receives training, documentation, guidelines, and other key support from the franchisor. Visit our What is a Franchise? page for more info.

What is franchise development?

Franchise development is, generally, the process of preparing a business for expansion via franchising and, ultimately, the growth of a franchise brand through the sale of franchised units to franchisees. Franchise development services usually encompass strategic business planning, and the development of franchise legal documents, operations manuals, and sales and marketing tools.

How do I turn my business into a franchise?

Before franchising a business, you should evaluate its franchisability by asking some important questions. Is your business model profitable? Is there market demand for your concept? Can it be replicated? Is it sufficiently differentiated from other concepts? Is franchising the best expansion vehicle for your business? Once you have answered these questions and are confident about proceeding, developing a franchise program does require an investment of time and funds, most importantly in operational documentation (the creation of a franchise operations manual) and legal document development (Franchise Disclosure Document and Franchise Agreement) by a franchise attorney. Other important components include franchise strategic business planning, marketing tools, and more. But the good news is that the cost of using professional advisors to help you prepare your business for franchising appropriately is often less than the cost of opening one additional company-owned location.

Is franchising a business a viable business strategy?

Franchising is a means of expanding a business concept, while leveraging the time and capital of others, versus spending resources and funds on opening additional corporate owned units. Once an investment is made in creating a viable franchise program, and revenues start flowing in from appropriately established franchisee fees, royalty and other ongoing payments, a franchisor should ideally find that it is profitable to franchise a business.

What does a franchise consultant do?

A franchise consultant is an individual or firm dedicated to providing franchise development services to emerging or established franchisors. Services may include strategic business planning, the development of franchise operations manuals, tools and guidance for franchise marketing and sales, and other franchise consulting services designed to provide franchisors with compliant best practices and to help them reach their business expansion goals.

How do I choose a franchise consultant?

When choosing a franchise consultant, it is important to understand the breadth and depth of experience offered by the firm. Evaluate the type and number of clients they have worked with who have gone on to successfully franchise. Are there recognized names on the client roster? Review their individual consultants’ years and levels of experience in the franchising industry. Are they seasoned experts or new to franchising? Understand their service offerings. Are they a one-stop shop, or specialize in one particular area? Get a sense of how they work with clients. Do they charge ongoing retainers or provide services for set flat fees? Finally, ask to speak to client references to see what other companies have to say about their team, their services and their business philosophies.

What is an international franchise?

An international franchise can refer to any franchise concept expanding outside its home country into another country. Because of its market saturation and long history in franchising, investors from abroad often look to established U.S. brands when they are considering purchasing a franchise. The U.S. is home to the vast majority of the world’s brand name franchisors.

How do I start an international franchise?

Franchisors targeting international growth are well advised to start by targeting a specific country or group of countries in which they would like to expand, rather than simply selling franchise rights to the first buyer that comes along. The first step for the franchisor is to identify the best countries for its particular concept. Considerations such as franchise climate, the market for the product or service, competition, proximity, language barriers, culture, political climate, and relevant legal concerns should all be factored into the decision. Franchisors should seek out the expertise of strategic planning, legal, marketing and sales (often international brokers) professionals.

What are the benefits of international franchises?

With the U.S. markets so saturated with franchises, foreign markets provide an almost unlimited opportunity for expansion. All the reasons franchising benefits companies at home, apply abroad as well – the ability to expand more quickly, to expand using someone’s else’s capital and expanding without having to deal with all the challenges of hiring employees.

What is included in a franchise operations manual?

A franchise operations manual contains confidential information that the franchisor provides to the franchisee covering the systems, standards, procedures, and overall operations of the franchised business. Sections within a franchise operations manual usually include an introduction to the franchise system, daily operating procedures, job descriptions, equipment and inventory lists, reporting requirements, financial and business management tasks, marketing guidelines, and other important business functions.

What is the importance of a franchise operations manual?

The franchise operations manual helps ensure that a uniform experience is provided across all locations of a franchise brand. It also provides legal protections to the franchisor and the franchisee by detailing proper operating procedures that should be followed. A franchise operations manual should be kept current and updated on an ongoing basis, to ensure consistency and compliance across the franchise system.

What happens if I sell a franchise without developing the necessary documents?

The fines and penalties can be significant. A franchisor can have significant liability under FTC Rule 436 not to mention actions by the state agencies.

Can I avoid franchise laws?

There are some technicalities that you can use, depending on your situation. For example, FTC Rule 436 has an exception for companies who charge total fees of less than $500 in the first six months of operation. But if you have the three definitional elements of a franchise, it is generally best not to try, as fines in some instances have run in the millions of dollars. Moreover, in addition to the federal law governing franchise sales, 23 states have separate regulations on the subject.

What do the franchise laws require?

Generally, FTC Rule 436 requires that you provide prospective franchisees with a prescribed disclosure document when the franchisee reasonably requests it. State laws require that you register or file those documents with specific agencies. You are not allowed to sign a franchise agreement or take money from a prospective franchisee until the expiration of required waiting periods.

How do I know that I will be able to sell franchises?

You don’t. Selling franchises requires a different set of skills and a business that meets the test of franchisability. While there are no guarantees, industry surveys have indicated that on average a new franchisor will sell between six and nine franchises in its first year of franchising. And some have grown much faster.

What if I only want to sell one or two franchises? Do I still need to go through all the time and expense?

Depending on your situation, no. All you technically need are the appropriate legal documents and registrations (depending on your state). This may be accomplished for relatively little in the way of expense — perhaps as little as $15,000.