A business owner can expand a business in several ways. Franchising is one of those ways. A franchise business model is a business arrangement in which an established company grants the right to open and operate a new location with its brand name, products and services. The franchisee (the person who owns the new location) pays royalties to the franchisor (brand owner) for using their trademarks, logos, recipes and other proprietary information.
Have you considered taking your business to the next level using a franchising model? In this article, you will learn about some of the things you need to do to franchise your business.
Does franchising make sense?
Before jumping into the world of franchising you need to ask yourself if franchising makes sense for your business. Franchising seems like a good way to expand a business, but it’s not right for all businesses. Your business must be profitable and your business model must be a model that can be successfully replicated. It should be a model that can provide adequate returns for the franchisee.
If you are a new startup, in most cases, franchising does not work. Franchising a business requires you to provide materials, office supplies, and a business plan. New startups are usually not in a position to franchise their business. The focus of many startups is to get past the survival phase.
Do you know how your business works properly? As a franchisee, you will need the right details to run your business. Although it takes more time, planning will help you run your business smoothly especially if you decide to franchise it. As the franchisor, you should ensure that you have an operations manual that clearly spells out your detailed policies as well as best practices.
There are many here Advantages and Disadvantages of the Franchise Business Model For both franchisees and franchisors. Be sure to evaluate all the benefits and risks associated with franchising your business
Get legal advice
If you want to franchise your business, you will need some legal advice. There are some important aspects of franchise law that you should familiarize yourself with. You will need to fill out documents and contracts with the help of an attorney. Certain processes such as pricing, drafting a franchise agreement as well as determining intellectual property protection cannot be done properly without the help of an experienced attorney.
The Federal Trade Commission wants to pursue franchisees Franchise Rules. Franchise rules give potential buyers of franchises the material information they need to weigh the risks and benefits of such an investment. The rule requires franchisors to provide all prospective franchisees with a disclosure document containing 23 specific items about the proposed franchisee, its officers and other franchisees.
The disclosure document is called the Franchise Disclosure Document. These are the 23 items that must be filled in the FDD:
- Business experience
- Public statistics
- Initial fee
- Other fees
- Outlet and Franchise Information
- initial investment
- Restrictions on the source of goods and services
- Franchise Obligations
- Restrictions on what franchisees can sell:
- Support, advertising, computer systems and training
- the area
- Patent, Copyright and Proprietary Information
- Restrictions on what the franchisee can sell
- Renewal, Termination, Transfer and Dispute Resolution
- Public statistics
- Presentation of financial performance
- Financial statements
- Obligation to participate in the actual operation of the franchise business
As you can see, the details of franchising your business are important to the FTC and should be to you. Take the necessary time with your attorney, board of directors and accounting team to ensure the details are properly disclosed.
Create your franchise model
Most people are familiar with the traditional model of franchising a location. A variety of franchise models are available. Here are the most common:
Business model-This is the most common type of franchising model. In this type of franchise, a company expands by supplying independent business owners with an established business with its name and trademark.
Manufacturing-In this model, a franchisor grants a manufacturer the right to produce and sell products using its name and trademark.
Product franchising-In this agreement, manufacturers allow retailers to distribute their products and use their names and trademarks.
There are other important decisions you need to make about whether your franchise is a franchise fee or royalty percentage, the geographic location of the franchise, and how you will market them.
Choose your franchise wisely
You should be very careful while choosing a franchise. You will find many people with capital and again you have to be very careful to determine if they are the right kind of people. Check their background to find out if they have the ability to run the business successfully.
These people will represent you and they should do so accordingly. Your main reason for franchising your business is to protect and grow it. Come up with an interview process so you only work with people who meet the standards you set.
Grow and protect your business
Your brand is your most valuable asset and as a franchisor, you should work hard to grow and protect it as much as possible. You have worked very hard to build a good reputation for your brand. The biggest risk in franchising is that you allow other people to represent your brand.
Make sure you create guidelines that will govern the use of brand assets. Some people may take advantage and use your brand assets inappropriately if you don’t have such guidelines in place. No one should use your brand assets inappropriately or without your authority.
Make sure you monitor images, videos and social media outlets regularly and in detail to be successful.
Offer support to your franchisees
You need to meet your franchisees in person or talk to them over the phone or online every now and then. Do what you can to motivate them when they have achieved one. Share important information with them and make sure they have a way to communicate with each other.
This article was first published in July 2016 but has been updated and expanded in 2022
Featured · Franchising · Product Development · Sales
Money · Grow Your Business · Sales