Things are going well with your business, and someone says to you, “You should franchise!” Should you? Are you ready? Before you leap to action, ask yourself six critical questions.
Sure, you’re having a good season right now, but is your business established enough to show strength across all seasons for a number of years? Buyers are looking for consistency over potential, so you need to be ready to prove to them by your own model that they can be assured success. This evidence will elevate the value of your franchise.
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Yeah, you’re doing well, but what makes your business stand out above your competition? What do you bring to the table with your franchise that others don’t? Your business should get others excited about the concept of doing the same thing. We’re talking unique, credible, success, vibe, and sizzle. These details are what attract potential franchisees to you.
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In other words, can it be cloned? You want to make sure that your business is easy to replicate into a franchise. The magic power should be in the business design, product, or service. If your key to success is the perfect location or rockstar employees, replicating that formula may be difficult to ensure success to a franchisee. Your business should be easy to replicate in a variety of markets and locations. Your methods and processes should be easily teachable to others.
Franchisees are looking for a profit, and they turn to franchises for a short cut on that learning curve. Are you able to provide those assurances that you’ve done the hard work for them and streamlined proven processes to achieve a profit for them as well as you by way of royalties?
When franchising your business, you are growing your brand with the help of others’ investments, but they expect some commitment from you in exchange. As a franchisor, your role will change from an owner/operator to owner/operator/sales/support/marketing/trainer. Part of the value of your franchise is your participation and preparation for the franchise success.
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Yes, it’s true. It costs money to make money – even when franchising. You will require funds first for the legal details of your franchise. Next, there will be costs associated with marketing your franchise and a robust training program complete with materials for your franchisees. Before taking steps to franchise, make sure you have the means to see it through.
Before making any sudden moves toward franchising, give each of these questions some considerable thought if you can answer some questions with more confidence than others, list out the goals you still need to achieve, and a plan to achieve them. Consider it your playbook to the ultimate goal of franchising your business. It would help if you also spoke with a franchise consultant to identify and fill any additional gaps to your readiness. They have first-hand knowledge about what details get the attention of those prospective franchisees.For many companies, franchising is a natural next step in the evolution of the business allowing them to expand their reach exponentially and ultimately bring in new revenue streams. The business of franchising also creates the opportunity for national brand awareness.
In many industries, launching your franchise brand can be less expensive than investing in opening a second or third unit and developing it to maturity.
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A business owner must consider a number of crucial steps in order to begin the franchise process. Several important questions must first be addressed to determine whether a business is both franchise-worthy and franchise-ready.
A central question to ask before franchising a business is, “What makes your brand unique?” While it doesn’t have to be groundbreaking, the brand needs certain attributes that make it stand out in the marketplace. Product and price are two obvious differentiators, but there are other factors that make a company stand out.
A company’s unique story can also set it apart. Consumers increasingly want to give their money to companies whose mission, vision, and story align with their own personal values.
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Next, it’s important to determine whether your brand is replicable in different geographic areas. Both an objective and subjective question, in order to assess universal appeal, brands need to determine whether other markets need what they’re offering or whether it’s relevant only in their area of the country.
Before franchising, companies need to make sure they have the infrastructure in place to distribute their products to different markets as well as the leadership team to oversee it. As franchisees sign on to develop a brand, they’re going to rely on a corporate team to help get their businesses up and running.
In order to be successful at franchising, founders need to ensure they have well-established systems and processes in place from the start. It is valuable for most companies to increase a brand’s credibility and document the proven business model they’re trying to expand. This can vary from brand to brand:some may have one location where others may have multiple units.
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The experience that comes from operating your business also allows the opportunity to refine your model before franchising, ensuring the look and feel of the brand is solid. No detail should be overlooked—everything from product to design to tone have to hit the mark.
In addition to fine-tuning the model, it’s important to have a protected trademark. A company’s unique products, services, design and name is not enough today. A franchise lawyer can file the necessary paperwork, help build a Franchise Disclosure Document and provide counsel about franchise laws, which vary by state.
Finally—and perhaps most importantly—a founder needs to make sure the business is growing and headed in the right direction before taking the next step to franchise their business. Franchising takes a lot of effort, time and attention, but for many, it can also be a rewarding journey.After the initial stages of starting a business, many entrepreneurs begin to consider how to scale. Franchising is one way to grow a successful operation. Read on to learn:
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Franchising is a type of agreement that entails reproducing a successful business model across multiple locations. As the business owner and franchisor, you would create a franchise agreement to begin the process and move toward opening a new franchise.
This agreement allows franchisees to attain limited rights to your intellectual property, supply chain networks, training systems, and more in order to open and operate a new location for your business.
Franchising and licensing are two different ways to share your brand information in exchange for a fee. The distinctions between franchising and licensing center around control and operation:
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The type of franchise that's right for you depends on the size and complexity of your business as well as the industry you operate in.
Including preparation, franchising typically requires three to four months of time. The process can move more quickly depending on how complicated your business model is.
The cost to franchise varies depending on industry, state of residence, and more. Sometimes, it can cost less than $20, 000 total, but some franchises push costs near $100, 000 or higher.
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The Federal Trade Commission (FTC) regulates franchise operations at the federal level, but each state has its own rules and requirements for franchise operation. To make sure you don't miss any state-specific requirements, it's best to speak with a franchise attorney who can help you prepare documents in your specific state.
Once you decide to franchise your small business, you'll need to prepare to take on the new independent contractors that will run their individual franchises.
Before embarking on the franchising journey, there are a few questions you should ask yourself to ensure your business is ready to franchise.
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The answer doesn't need to be “yes to every question, but you should aim to give honest answers to highlight any weaknesses that may be in your blind spots.
According to Blair Nicol, CFE, vice chairman and principal of franchise consulting firm FranNet, it's best to start with an original location that already has an established presence. Small business owners, he said, “should have already duplicated the concept a few times. That way, they have a replicable model that has been proven to work anywhere.
A central element to franchising your business is granting franchisees access to a wealth of intellectual property. This allows them to brand their franchise according to your guidelines and also encourages the growth of your business. But it can expose you to risks if your intellectual property isn't adequately protected.
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According to the Franchise Rule, you can only sell a franchise to a prospective franchisee once you provide them an FDD that's in compliance with FTC rules and regulations.
An FDD is like the articles of organization for your franchise—it introduces key players, defines operating terms, includes financial statements, and addresses obligations of your franchise agreement. In fact, it must contain 23 specific sections according to the Franchise Rule:
These requirements are important to ensure that your FDD is a living document that keeps franchisees informed with the most current information.
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Tip: Give prospective franchisees as much time as possible to review your FDD. It's in your best interest to only align with franchisees who are wholly committed to their investment—their success is your success.
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