How To Franchise Your Business
Updated: Feb 15, 2020
Check out our overview of what you need to be aware of, to turn your business into a franchise.
One question that many business owners ponder is, “if I want to turn my business into a franchise, what steps should I take?” The answers come at several levels.
The first step in this process is to make sure that your current business model is viable and running well. Ideally, the business should be in a solid industry niche, have good operational and marketing systems in place, solid vendor relationships as well as a profitable bottom line and opportunity for a reasonable return on investment. It should also be a business model that can be replicated and adapted from location to location. Proof of concept is essential for a good franchise model.
The second step is to make sure that you, as the owner, are comfortable “wearing a different hat” as the owner of a franchise company. The role and mission of a franchisor is different from operating your current business on a day-to-day basis. As a franchise company, your primary roles are to award franchises and train and support the franchisees that you bring into your system. A commitment to developing and sustaining relationships with those franchisees is vital to the long-term success and viability of the franchise company and your brand.
The third step is to make sure that you have the proper legal foundation to move forward with franchising. The Federal Trade Commission requires that franchises only be offered through a Franchise Disclosure Document (FDD). The FDD describes and discloses the terms of the business opportunity that you are offering in very specific ways. Many states also require additional filings or registrations beyond the federal requirement before you can offer franchises to residents of those states. The companion legal document to the FDD is the Franchise Agreement, which is the executable contract that you enter into with your franchisees. This document details the specifics of your relationship with the franchisee moving forward. Finally, I strongly recommend that you have, or have filed for, a federal trademark to both protect your brand and to add value to the investment in your brand by franchisees.
Another key step in the process is to make sure that your operations are properly documented. The fundamental bargain in franchising is that you have created a business model that works and you’re willing to lease that model to franchisees so that they can use it to operate their own business. That business model is, essentially, your intellectual property. You need to protect and document that intellectual property by having a franchise operation manual. A franchise operations manual is often broader in scope that a typical manual developed for one or several sites. Some core aspects will be the same, but the franchise operations manual should also include things like how to form a business, how to select a site, what is required related to décor and signage, evaluations for franchisees, etc.
Overarching all of these items is a core group of strategies for how you see the franchise growing and thriving. This includes franchise sales and marketing plans, an idea of the ideal geographic footprint of the franchise system, organizational infrastructure to support franchisees, etc. It’s important to have a vision in place that can be implemented to the benefit of both the franchisor and franchisees.
Finally, it is also important to have the financial resources available to franchise your business. It requires the funds to properly develop the legal compliance documents, operational documentation, to market the franchise opportunity and to support the franchisees among other obligations to grow and prosper a franchise company.
By: Bill Nelson
Regional Developer, Franchise Development Group
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