As they break into owning a business, many business owners dream of the day where their brand will become a household name, known coast to coast and potentially across the globe. If developed effectively, with the right concept, franchising can be a very lucrative opportunity that doesn’t require as much start-up cost as taking the company-owned-and-operated route. However, if this is the route you wish to take, there are several steps that need to be taken before taking the final plunge.
1. Evaluate your business
The first thing you will need to honestly ask yourself is if your business is suited to become a franchise. Beyond having the consistent sales and revenue, you must consider if the concept can be easily replicated.
Take Chipotle, for example, which offers a simple QSR concept with all natural ingredients. This concept is appealing both to consumers and prospective franchisees. It’s not something that requires the founder’s special touch and has the opportunity for scalability.
You should evaluate your business model on exactly that—is it easily replicated? Is it scalable? How much will it take to be profitable? Instead of making educated guesses to these questions, try it yourself. Expand your business into at least a couple of profitable units before attempting to franchise.
2. Educate yourself on the legal issues
A lot more goes into establishing a franchise than you might think. In order to sell franchises in the United States, you will need to complete a Franchise Disclosure Document (FDD) with the Federal Trade Commission. This document takes a lot of time, as you will need to provide business information including audited financial statements, an operating manual for franchisees and a background on your management team.
Beyond the federal FDD, states have their own rules for selling franchises as well. You will need to be aware of these as you look to expand to other states. It is important to note Item 19 on your FDD filing, as this is where you are expected to outline your financial performance information. If everything is not specifically itemized, you could get rejected. These legal complications are why it might be helpful to seek professional help, like that of a franchise consultant.
3. Set your restrictions
You will be expected to provide specific instructions to your franchisees on hiring, training and other best practices. The following are just some of the standards you will need to develop:
• Franchise fee and royalty percentage• Term of the franchise agreement• Size of the territory each franchisee is awarded• The geographic areas you offer franchises in• Your training program (type and length)• How franchisees obtain products and equipment• The marketing you will offer• The business experience and net-worth franchisees will need
These decisions are important, as they will directly affect your future profitability. This is another reason a consultant would be helpful.
4. Make franchise hires
In addition to the staff you already have, you will need to add other employees whose sole responsibilities will be supporting and managing franchisees. This will include salespeople, marketers, trainers and managers. These people should have franchise backgrounds and provide unique skill sets that will support you on this new endeavor.
5. Sell franchises
Once you have been approved and registered as a Franchisor, with key people in place, you are ready to sell franchises. This might sound more difficult than it seems. Since you are still in the new stage, you will have to convince people to buy your concept. This is difficult as there is high risk involved, which is why it is so important to hire exceptional salespeople who know your business well and believe in the concept.
Turning your business into a franchise can turn your business into the profitable machine you’ve always dreamed it would be. However, it takes a lot of time and evaluation to get there. The decisions you make in the early stages will ultimately affect if your business can become a national, or international, brand.
With so many important decisions to make, it is essential to bring on someone who understands how the process works. All Systems Grow understands the important of systems and processes in a successful business. If you are looking to take your business to the next step, contact us today.
