Franchising a business is a relatively simple concept. It involves selling franchises, or licenses, to franchisees. This license allows them to open new locations of the business while utilizing the established trademark, supply chains, and training methods to run their location and grow the business.
The benefits of franchising a business include rapid expansion with low investment and increased exposure. Hiring qualified franchise owners who have in-depth and personal knowledge about their local areas will also ensure a steady growth in sales at every location, quickly multiplying the total revenue and royalty payments.
Generally speaking, the initial franchising process can take around 90 to 120 days. The decisions made during this time period will be crucial to business growth and the future success of the franchise.
7 Steps for Franchising Your Business
To franchise your business, there are several legal stages to cover. These are the 7 simple steps to franchising the business and growing a successful brand.
1. Create a Franchise Disclosure Document
The first step is to prepare an FDD. This legal document, created by franchise lawyers, must comply with the state and federal laws. The document gives permission to franchise your small business and sell it to prospective franchisees. A multi-state FDD will allow the business to sell franchises in any state, so make sure the FDD matches the business objectives.
2. Register the FDD With the State
Some states, such as New York or Illinois, require that all franchisors register before selling a franchised business. Be sure to file the appropriate notices and applications prior to branching out.
3. Register Trademarks
To franchise your business, register all trademarks with the United States Patent and Trademark Office. This includes words as well as the business logo. Registering trademarks protect against logos being used without your permission, or franchisees stealing your intellectual property.
4. Write a Comprehensive Operations Manual
This manual will be distributed to franchisees, and will clearly document everything they need to know about how the business should run. Include procedures for opening and closing, training staff, and maintaining brand identity. The operations manual should be updated every year.
5. Register a New Company
When preparing to franchise your business, register a new company, and open a bank account. This franchise entity is distinct from the business entity and protects your business when selling franchises. Before selling a franchise, all this paperwork must be complete.
6. Implement a Sales Strategy
Think carefully about the customer base for the brand, and the best place for new franchise locations. Determine if the growth strategy should start locally or in another state, and implement appropriate marketing plans and sales processes to find franchisees and customers in these areas. The sales strategy should lead to long-term and sustainable growth of the franchise and the business.
7. Create a Plan and Budget
When franchising, create an airtight plan and set a realistic budget. Costs may be higher than expected, so think through a number of scenarios, and create a comprehensive plan. After all the legal paperwork is taken care of, focus on franchise development, including recruiting the right franchisees, and providing great training programs and support. Develop business plans for franchise marketing and sales, and create a robust system that will last.
Best Practices for Franchising
When learning how to franchise your business, it's important to avoid common mistakes in order to become a successful franchisor. The following are some best practices to keep in mind as well as mistakes to avoid.
- Calculate the Cost - Franchising can be a great way to rapidly increase business development and revenue but don't underestimate the initial franchising cost. Be sure the business can afford the upfront expenses, including legal fees, creating franchisor documents, and updating these documents every year as per the Federal Trade Commission regulations.
- Prepare for the Role - Being a successful business owner doesn't automatically mean you'll become a great franchisor. Prepare for the role, and learn new skills such as franchisee recruitment, writing manuals, and operation guidelines, and training franchisees. All of these tasks must be accomplished without taking too much time away from the current business.
- Plan the Transition - To franchise your business, carefully plan the transition, and consult with legal counsel or a franchise consultant. Write detailed operations manuals of the current business, think about cost, and preplan every step of the way before making the first move.
- Avoid Rushing to Franchise - Never rush into franchise opportunities, but make sure the business model is successful before getting ready to grow. First, analyze the financial performance and market trends. If the business has been successful for at least 3 years, it's a good model, and you can think about how to franchise and further expand.
Determine the Cost to Franchise Your Business
The cost to franchise your business can be broken into two parts, with the first stage requiring the most investment of resources.
The first part is the development stage. In this process, you'll need to get legal aid, create the FDD, register with the state, and register trademarks. Think about the time and costs associated with writing the operations manual and registering a new company. All of these tasks are time-consuming and can be very costly.
This first stage can cost anywhere from $18,500 to $84,500. The wide variation in price depends on the industry of the business as well as the cost of the lawyer and the franchise developer. Be wary of cheaper options, which may not protect the business from franchise violations, and avoid over-priced options that don't actually add more value to the franchise.
The second part is the franchise sales stage. During this time, you'll accept applications from franchisees, attract candidates through social media marketing and advertising, connect with people in your personal network, or even contact a franchise developer. This stage can take about 1 year and can be repeated as the business sells more franchises.
Once you know how to franchise your business, this process can be repeated as the business sells more franchises, recruits more franchisees, and grows into a successful brand.