How to Franchise Your Business
Franchising is a great opportunity to take your business to new heights, allowing your business to grow without the high cost of equity through a licensing relationship. While it may be the right move for your business, taking on this endeavor demands ample preparation and consideration. Before you decide to franchise your business, read through this guide to find helpful strategies to do it the right way.
Is your business ready to franchise?
How can you know the right time to turn your venture into a franchise business? There are a few important questions to ask yourself before you decide to do so.
Is my business easy to duplicate?
In order to successfully transition to a franchise business, your current business model must be easily replicated. If your business is successful primarily due to its location, it may not work well in other areas. Consider whether your business could work in all types of environments before deciding to franchise.
Do I have a clear brand?
Franchising depends on your business’s ability to bring a clear, strong brand to the table. It’s more than having a good business idea. You must be able to communicate your brand’s purpose to investors, shareholders and potential franchise owners.
Am I financially ready?
Owning a franchise is a big financial commitment. If your business isn’t currently making a good chunk of change, it’s probably not the right time. You must also be open to the idea of losing money. Franchise companies always carry a risk, so if you aren’t prepared for the possibility of losing money, it may not be the right move.
Am I open to new ideas?
Many business owners take pride in having started their company independently. When you decide to look into franchise opportunities, you’re opening up your business model for tweaks and changes by experts in their respective fields.
Related Article: How to Start a Small Business
Learn About Legal Requirements, Permits and Licenses
- You Need to Register a Franchise Disclosure Document
Before you become a franchise and sell to potential franchisees, you must register a Franchise Disclosure Document (FDD) with the Federal Trade Commission (FTC). The FDD contains information about your business, such as financial audits, business experience and operating manuals for franchisees.
- You Have to Contact Your State
Some states have additional requirements for franchises within their borders. If you want to franchise in all 50 states, you need to meet the requirements in each one. Consider hiring an attorney who specializes in franchising to understand the costs associated with this.
- You Have to File a Franchise Seller Disclosure Form
You’ll file this form with your state regulator to disclose yourself as a seller of a franchise. In some states, this form is a part of the FDD.
- You Should Outline Your Operational Details
Your legal paperwork must clearly define all details about your franchise companies. Determine the length of training for new franchisees, the regions in which you’ll sell, the qualifying net worth of each franchisee and whether inventory for the franchise must be bought from certain companies.
How to Organize a Franchise Plan
Before you expand to a franchise business, you should have a plan in place that outlines all of the details. There are a few ways you can go about this expansion process. Read the following considerations when making a franchise plan.
Fees and Royalties
A royalty is the set percentage you receive from the gross sales of a franchise business. This royalty can be set weekly, monthly or yearly. Before determining your royalty fee, research the average royalties for similar franchises within your industry. You may also set a franchise fee, which is a set amount of money a franchisee pays to open a franchise.
About Operations Manuals
Potential franchisees want to be sure they can successfully carry out your business. Provide them with a clear operations manual that shows them how to establish and run the franchise. The operations manual can also include requirements with which all franchisees must comply. In this sense, it serves as a legal document.
Learn About Marketing Strategies
How will you market your franchise opportunities? Between advertising and statistical analysis, marketing requires your full attention. For this reason, many franchisors hire marketing agencies or firms to come up with a plan for their business. If you choose to outsource your marketing strategies, include the details in your plan.
How to Create a Team
Franchising your business requires the help of many individuals. As such, hiring a staff for the franchising process is the best way to tie up loose ends and ensure the process goes according to plan. Consider hiring a franchise attorney for legal documents, a marketing agent to communicate your brand to franchisees and a web designer to manage your online presence.
What to Look for in a Franchisee
Your business is your baby and once you start franchising, you want to be careful about who you partner up with. You’ve nurtured it and watched it grow from its very beginnings. Don’t sell your franchise to just anybody! Hire the best franchisees to promote a positive public perception of your business. Here’s what to look for in a franchisee.
Proper Net Worth
The first thing to consider in a potential franchisee is money. He or she must have the liquid capital necessary to pay your fees, royalties and keep the business afloat. Likewise, he or she must have good credit to secure any loans necessary for owning a franchise in your business.
Your franchisees work directly with your customers, as well as their employees. Make sure they have excellent communication and people skills. They will be managing a team of employees, so they must understand how to resolve conflict, create schedules and promote efficient teamwork. The franchisee may also be responsible for community outreach programs, so connecting with members of the community is important. Many of the most successful franchise companies are those that maintain a good image with their community.
Longstanding Business Experience
Hiring a franchisee with zero business experience probably isn’t the best move. You need someone who has a proven record of success, whether that be in owning other franchises or working in another business industry. Look over the individual’s resume and education history before deciding to hire them.
A Positive Attitude
If your business turns into a large-scale franchise with hundreds of locations, you cannot keep tabs on each individual franchisee. During the hiring process, look for individuals with a positive, go-getter mentality. You won’t have to worry about reassuring them of their abilities and can trust they know what they are doing. Someone who is constantly worried about failure probably isn’t the best-suited individual to run a franchise.
How to Sell and Support Franchises
As a franchisor, you must have a clear and concise selling plan for your franchise business. Your potential franchisees want to be sure they understand the business entirely, as well as know the up-front costs before making any decisions. Here are some tips to keep in mind when creating a selling plan for your business.
Tip #1: Narrow Your Market
Trying to sell your services to anybody and everybody only exhausts your resources. Instead, narrow your efforts to a certain niche in the market. Find potential clients by researching areas in which your franchise opportunities would succeed.
Tip #2: Outsource
If your franchise takes off, you may have potential partners knocking at your door eager to run your franchise business. These outside firms or businesses take care of every aspect of the franchise sales process, allowing you to focus on other important areas of your business. Even if you outsource the handling of initial leads, database input and maintenance, you’re still the only one who approves franchisees. Likewise, outsourced administrative support helps if you’re a wide-scale franchise. Human resources, accounting and other departments work to resolve issues within your franchises so you don’t have to.
Tip #3: Stick to Your Contract
It’s important to support your franchises. However, you are only obligated to provide things clearly outlined in the contract. When you own a franchise, you will need to help franchisees in the initial training of their employees. After the initial period is over, it’s up to the franchisee to implement other programs to train employees and continue their own education in the business. Sticking to your contract helps keep it fair among your franchises and protects you from legal trouble if a franchisee feels there is favoritism.
Additional Resource: Business & Franchise Opportunities– Entrepreneur
- Financial Panning