Are you consistently being told that you should start franchising your business? If so, franchising may be the growth strategy for you!
How Starting a Franchise with Your Business Works
Franchising generally consists of developing additional outlets through the sale of franchise rights to independent investors. These investors will then use your name and system of operation. An initial franchise fee is paid to the franchisor by the franchisee in return for the rights to operate a business under the franchise trademark. In addition, this fee covers training in how to operate the business and additional services such as site selection assistance. With many systems, a franchisee will pay a continual periodic royalty fee for ongoing support and training in:
– Operational guidance
– Other services
From your perspective as a franchisor, all of the capital required to start the business is furnished by the franchisee. This is one of the most important benefits of franchising. Additionally, the franchisee assumes all risk – be it success or failure.
What is a Franchise?
The Federal Trade Commission defines a franchise as a business relationship with three primary components:
1. The use of a common name or trademark,
2. The presence of significant operating assistance or control, and
3. A required payment by the franchisee
Why Should You Start a Franchise?
Does your concept have a wide market?
Is your concept unique?
Can your concept be easily duplicated?
Will your concept sell?
If you answered yes to these questions, then starting a franchise may be the best model for your business.
Starting a franchise with your business has many advantages:
– Money: You expand using the franchisees capital.
– Reduced Risk: Franchisees are responsible for hiring, leases, and unit-opening expenses. The franchisee assumes the risk of success or failure.
– Time: Turnaround time to open new franchises is significantly faster than opening company-owned units.
– People: Franchise owners are fully vested and highly motivated operators, which helps keep management and operations running as smoothly as possible.
Starting as a Franchisor
The initial development of a franchise program requires an investment of both time and funds. However, the cost of professional advisors to help you properly develop your franchise is typically less than the cost of opening one additional company-owned location. Hiring a credible and experienced franchise consultant will help you through the process.
Your franchise needs a successful prototype – the real-life example of the possibilities of your business. An active, exciting operation allows prospects to picture themselves running your franchise. But beyond a demonstration of the viability of your concept, an original location can also become a training center for new franchisees and a testing location for new products, services, or techniques.
Secure a trademark. A trademark is a representation of the “brand” – the entire character and persona of the concept. While many companies will start franchising before their trademark is completely registered, you will definitely want to have begun the process. Inability to secure a trademark is a typical mistake by new franchisors, so the principal undertaking is to build up a name that can be endorsed by the U.S. Patent and Trademark Office.
Don’t cut corners. A robust Operations Manual is also needed to detail written procedures that standardize your methods and become your training manual for new franchisees. It should cover everything from start-up activities to marketing, personnel management, and office procedures. It’s best to work with a professional technical writer who know how to create procedures that are easy to read and to follow and follows franchise best practices. If you choose not to use a professional technical writers, it’s recommended to have the document reviewed by either an expert franchise consultant or experienced franchise attorney.
Develop a strategic marketing plan. You will need to:
– Create marketing tools to help sell your franchise.
– Hire a franchise development consultant with expertise in designing sales tools to showcase your business (e.g. franchise brochure).
Properly create a Franchise Disclosure Document that is prepared according to strict guidelines. This is best prepared by a seasoned franchise attorney. The FDD needs to be submitted and approved by various states that regulate franchising prior to even speaking to anyone about your franchise program.
Be sure you are trained in all aspects of franchise sales – including the legalities governing these sales – before you start selling franchises. Franchise companies either use the services of outsourced franchise sales professionals or seek to hire franchise sales talent and place them on staff. Either way, a savvy franchisor will understand the implications of their sales and staffing decisions prior to finalizing them.
Your Franchise Company Development
As your franchise network develops, you take new responsibility in tending to your new franchisees. You must provide them with:
– Ongoing advertising support
– Access to approved suppliers with purchasing discounts
– A variety of “back room” services