Franchise Your Business in 7 Steps

Opinions expressed by Entrepreneur contributors are their own. Franchising your clientele is a prove route to rapid growth. But becoming a franchisor is not an automatic ticket to success, particularly in this challenging economy. In January, for example, three established franchisors filed for bankruptcy security : Taco Del Mar Franchising Corp., Uno Restaurant Holdings Corp., and Daphne ‘s greek Café .
placid, many business owners dream of seeing their mark become a family mention, with a network of franchisees from coast to slide or around the globe. When the right concept is franchised efficaciously, it can be a great expansion scheme that does n’t require as much up-front capital as growing through company-owned units .
If you ‘re considering franchising your business, know that the process of becoming a franchisor is normally long and involves considerable price. just because you qualify to sell franchises does n’t mean you will find buyers. Data from the International Franchise Association shows that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their inaugural unit by the end of 2009.

Becoming a successful fresh franchisor entails making many heedful decisions early on that will affect your business for years to come. There ‘s besides a set of legal paperwork to wade through to make sure your occupation complies with federal and state of matter laws that regulate the franchise industry .
here ‘s our guide to the important steps you ‘ll need to take along the road to becoming a modern franchisor .

 


Step One: Step One: Evaluate if Your Business is Ready

The beginning interrogate to ask is whether your business is suited to being franchised. Beyond having a racetrack record of sales and profitableness at the existing business, there ‘s several factors to weigh here, says Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group .

Consider your concept.

Most good franchise concepts, he says, offer something conversant, but with some singular twist to it. A well example is Florida-based Pizza Fusion which offers a familiar product — pizza — but with all-organic ingredients, delivered in hybrid-electric cars .
The concept has to appeal both to end consumers and to prospective franchisees. There should be an anticipation that more units will create economies of scale and increase profits. additionally, the commercial enterprise needs to be something you can systematize and replicate, not something that needs your personal reach to be successful .
“ Ask youself, is the concept salable ? ” he says. “ Can you clone it ? Does it provide dependable returns ?

Check your financials.

Most successful franchises take a business that ‘s already profitable and try to replicate that success in other locales. Cleveland-based franchise adviser Joel Libava says he likes to see companies with at least a copulate of profitable units beyond the beginning one already in operation before a company tries franchising .
“ Is it barely one big restaurant and mama ‘s fantastic pizza sauce ? ” Libava asks. “ Or did you keep growing ? ”

Gather market research.

Do n’t rely on your gut feel that your business would be a smash strike across the country. Gather grocery store inquiry to confirm there is widespread consumer need beyond your home city for what your franchise business would offer, and room in the market for a newly rival .

Prepare for change.

Becoming a franchisor means you ‘ll be engaged in wholly unlike activities than you were as a business owner. You ‘ll primarily be selling franchises and supporting franchisees now, alternatively of selling pizza or fixing toilets .
“ Ask yourself if you ‘re comfortable having a function as a teacher and salesperson, selling and supporting franchisees, ” Siebert says, “ as opposed to going out there and doing it yourself. ”
In summation, franchising your business will require that you relinquish some of the operate you ‘ve had over how your concept is executed .
“ Franchisees wo n’t do it precisely the way you would, even if they do it well, ” says IFA president Matthew Shay. “ If you are so married to your concept that you wo n’t let anyone else touch it, then franchising may not be correct for you. ”

Evaluate other alternatives.

Before you plunge into franchise, you may want to consider early options, Siebert says. Depending on your position slower growth, finding debt finance or taking on partners are all alternatives that may prove better ways to move forward .
It besides can cost $ 100,000 or more, so ask yourself if your party has the fiscal resources. Remember that while franchising allows you to grow flying, it besides means giving up most of the franchise units ‘ future profits, Shay says .


Step Two: Learn the Legal Requirements

In order to legally sell franchises anywhere in the United States, your business must complete and successfully register a Franchise Disclosure Document with the Federal Trade Commission. In the FDD, you ‘ll be asked to provide a across-the-board range of information about your business, including audited fiscal statements, an operate on manual for franchisees, and descriptions of the management team ‘s business experience .
Beyond the federal FDD requirements, some states have their own rules for selling franchises within their borders. California and Illinois are broadly regarded as having the most daunt adjustment march, says Libava. If you want to sell in one of these states, you ‘ll need to meet their requirements as well, at extra cost .
Franchisor Cindy Deuser, 51, co-founder of five-year-old franchisor Lillians Shoppes, says the principle binder her home submit of Minnesota provided was two inches slurred. It took the bargain-fashion-accessory company a full year and monetary value more than $ 100,000 to qualify in 45 of the 50 states, she reports.

“ It took longer than we thought, and was identical acute in terms of all the things you have to cover, ” she says .
To advise and assist in this process, adviser Libava recommends hiring an experience franchise adviser or franchise lawyer. Often, a modern company will be set up to act as the franchisor. Find an technical who can make sure you ‘re doing every compulsory gradation correctly .

Step Three: Make Important Decisions About Your Model

As you prepare your legal paperwork, you ‘ll need to make many decisions about how you ‘ll operate as a franchisor. key points include :

  • The franchise fee and royalty percentage
  • The term of your franchise agreement
  • The size territory you will award each franchisee
  • What geographic area you are willing to offer franchises within
  • The type and length of training program you will offer
  • Whether franchisees must buy products or equipment from your company
  • The business experience and net worth franchisees need
  • How you will market the franchises
  • Whether you want an owner-operator for each unit or area/master franchisees who will develop multiple units

New franchisors do n’t realize how a lot each of these decisions can affect their future profitableness, says Siebert .
“ If you ‘re thinking either 5 percentage or 6 percentage royalty, for exemplify, the remainder does n’t sound big, ” he notes. “ But five years by and by, when you have 100 franchises sold, and they each make $ 700,000 a year, that ‘s a $ 7 million annual mistake. And you ‘ve signed a 10-year contract. ”
Lillians ‘ Deuser says she and her sister/partner Sue Olmscheid, 45, ran many business-model scenarios with their franchise lawyer before settling on their $ 25,000 franchise fee, 7-1/2 percentage royalty and 10-year contract term. They seem to have hit a winning recipe — Lillians has grown to 32 shops in its first two years as a franchisor with its unique concept, in which stores are only open a few days a calendar month .
Be careful to note whether geographic variables such as weather or local laws may affect franchisees ‘ success. Territory size is significant besides, as too-large territories may have to be bought back subsequently at a agio so they can be split up, notes IFA ‘s Shay .
In the shell of San Francisco Bay-area solar-panel facility franchisor Solar Universe, the company is selling franchises in concentric circles moving outward from its headquarters, by and large in warm-weather states with high gear electricity costs and generous state of matter green-energy rebates, says fall through Joe Bono, 36. solar universe has sold 14 territories since qualifying as a franchisor in January 2008 .
inadequate discipline can leave your franchisees ill-equipped to implement your system successfully. solar Universe spent about $ 1 million cook to franchise, Bono says, including $ 150,000 to create a state-of-the-art trail center for franchisees accomplished with indoor roofs where they can practice installations .

Step Four: Create Needed Paperwork and Register as a Franchisor

once you ‘ve made the important decisions that shape how your franchise will operate, you ‘re ready to complete your legal paperwork. When you submit it, be prepared for authorities to critique the document and possibly demand extra disclosures before they approve your application .
While the FTC basically barely files your FDD away, you ‘ll need to wait submit approval. Bono reports solar Universe waited respective months to receive comments back from the express of California on its file, and it took four months in all to get approved there .


Step Five: Make Key Hires

As you prepare to become a franchisor, you ‘ll normally need to add respective staff members who will focus entirely on helping franchisees. In the case of Solar Universe, the caller sells its franchisees the solar panels they use, therefore laminitis Bono says he needed a full-time lease to staff the ordering desk. The caller besides hired a flight simulator and a full-time “ franchise preach ” to answer franchisee questions and resolve any problems .
For its separate, Lillians Shoppes hired a flight simulator, a creative director, a market assistant and a franchise-process coach who helped get franchisees using company software and systems, says CEO Deuser. Lillians now has a full-time staff of seven. The establish sisters inactive do all the buying for the growing chain, but Deuser says growth means they are already looking into hiring a second flight simulator .

Step Six: Sell Franchises

nowadays that you ‘re in clientele as a franchisor, one of your most press activities will be to find franchisees and convince them to buy your concept. Lillians is unusual in that the company has sold all its franchises by give voice of mouth and does n’t have a sales representative. To help stimulate matter to, the company offers a $ 1,000 referral fee to anyone who sends the party a modern franchisee .
At Solar Universe, Bono says they ‘ve hired two in-house salesperson to handle franchise selling. The company has besides entered into a partnership with the home franchise-consulting chain FranNet, whose consultants may present the company to their prospects. other common sales techniques include attending franchise fairs or hiring freelancer franchise marketing firms to help locate investors .
Selling franchises is difficult because of the high risk involved for franchisees, notes Siebert. Your salesperson should know your business well and be able to tell a compelling fib about why you ‘re a worth the investment of their fourth dimension and money .
Siebert boils down the issue this way : “ You ‘re saying, ‘I want you to give me all your money. then, quit your job, give up your security system and benefits, and go into a commercial enterprise you ‘ve never been in ahead. And follow my rules. ‘ You ‘ll need to establish a reasonably high level of trust. ”

Step Seven: Support Franchisees

As a franchisor, you ‘ll have gone through a fortune to reach this point. But hera – at the point where you begin supporting your franchisee network – is where a chain ultimately succeeds or fails. Your train programs and other support efforts will create timbre control, notes Siebert, making certain the mark provides a undifferentiated feel no matter which whole customers visit. With the Internet, this has increasingly come to mean providing ongoing on-line memorize modules for franchisees to use.

“ If you ‘re a restaurant operator and employ 20 people in a unit, ” he notes, “ you have thousands of new employees going through the system every year. Without ongoing education, it ‘s reasonably easy to institutionalize incorrectly behaviors. ”
At the same clock time, you ‘ll need to start marketing the growing chain to drive sales to franchisees. many new franchisors underestimate how a lot this market and support feat will cost, says adviser Libava. marketing encompasses everything from radio or mark ads to uniforms, logos, fliers, and logo artwork on company vans .
“ Trust that you ‘re going to need a draw of money for market, ” he says .

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