Is Your Business Ready to Franchise?

Franchising is a proven way to achieve rapid growth for your business, but it’s not without its complexities. Before diving in, evaluate if your business is suitable for franchising.

• Does your business have a strong track record of sales and profitability?
• Is your business concept familiar but unique?
• Can your business be systematized and replicated?
• Does your business offer good returns and potential for growth with more locations?
• Have you conducted market research to confirm consumer demand and market opportunity?
• Are you comfortable with the transition from a sole proprietor to a franchisor?
• Are you willing to relinquish some control over how your concept is executed?
• Have you considered alternative growth strategies?

Understanding the Legal Requirements

Selling franchises in the US requires registering a Franchise Disclosure Document (FDD) with the Federal Trade Commission. You must provide detailed information about your business, including financial statements, operating manual for franchisees, and details of your management team's experience.

• Beyond federal requirements, some states have their own franchise registration rules.
• It's important to hire an experienced franchise consultant or attorney to guide you through this process.
• Often, a separate company is set up as the franchisor.

Making Key Decisions About Your Franchise Model

Before registering your FDD, you need to make crucial decisions about your franchise model. These decisions will significantly impact your future profitability.

• Determine the franchise fee and royalty percentage.
• Define the term of your franchise agreement.
• Decide on the territory size for each franchisee.
• Specify the geographic areas where you'll offer franchises.
• Develop a training program for franchisees.
• Decide whether franchisees will purchase products or equipment from your company.
• Establish the required business experience and net worth for franchisees.
• Plan your franchise marketing strategy.
• Choose between owner-operators for each unit or area/master franchisees.

Example: Lillians Shoppes, a bargain-fashion-accessory company, ran business-model scenarios with their franchise attorney before settling on a $25,000 franchise fee, 7.5% royalty, and a 10-year contract term.

Creating Necessary Paperwork and Registering as a Franchisor

Once you've made your key decisions, you can complete your FDD and submit it to the FTC. However, be prepared for authorities to review the document and possibly request additional disclosures before approving your application.

• While the FTC primarily files your FDD, you'll need state approval, which can take several months.

Key Hires for Your Franchising Business

As you prepare to become a franchisor, you'll likely need to hire additional staff dedicated to supporting your franchisees. These hires will be crucial for providing ongoing support and training.

• Consider hiring a franchise consultant, trainer, franchise advocate, marketing assistant, and franchise-process manager.

Selling Your Franchises

Finding the right franchisees and convincing them to buy your concept is a critical part of becoming a successful franchisor.

• Develop a thorough franchise sales plan, including lead generation and marketing strategies.
• Build a dedicated sales team to handle franchise marketing and sales.
• Use franchise sales software to track and measure your progress.
• Focus on selecting franchisees who are passionate about your business and have the necessary skills and experience.
• Be prepared to ask difficult questions and invite candidates to do the same.
• Look for values, personality, and culture fit when adding franchisees to your network.
• Don't be afraid to say "no" to unsuitable candidates.
• Remember that franchisees are investing in your business, so you need to establish trust and credibility.

Providing Support to Your Franchisees

Supporting your franchisees is essential for their success and the overall success of your franchise network. Providing effective training, marketing, and ongoing support will ensure a consistent brand experience for customers.

• Invest in comprehensive training programs to help franchisees implement your system successfully.
• Develop a strong marketing strategy to drive sales to your franchisees.
• Remember that supporting your franchisees is an ongoing process.

Key Takeaways:

Highly successful franchised business concepts prioritize these aspects:

• Develop a comprehensive franchise sales plan.
• Create a fully resourced lead generation marketing plan.
• Establish a dedicated sales team.
• Utilize franchise sales software for tracking and measurement.
• Prioritize awarding franchises to highly qualified candidates.
• Ask challenging questions and encourage candidates to do the same.
• Focus on values, personality, and culture fit when selecting franchisees.
• Don't be afraid to say "no" to unsuitable candidates.
• Don't solely rely on franchise fees for profitability.
• Ensure that new franchisees are seeking a long-term fit with your franchisor.

By carefully considering these steps and adopting a strategic approach to franchising, you can increase your chances of success in this competitive market.