While franchising a business might not be the right move for every company, for some, it’s the ideal way to grow. If you’ve decided to franchise, getting the ball rolling can be a bit more complicated than you might have thought. Several steps are involved when starting a franchise, from getting your company organized to making sure the legal paperwork is in order. The following step by step guide can help give you a big picture idea of what to expect when franchising.
Get Your Business Ready
Up until now, you might have used a mixture of intuition and guesswork to run your business. That might work when there’s just one location or one person managing the company, but intuition won’t help you when you’re handing the reins over to a franchisee. Part of preparing your business for franchising involves gathering information on your company’s performance, such as sales figures and overall profits. It also means having a clearly defined concept and a step-by-step guide to replicating that concept. You might also want to have data and research that shows that there is demand for multiple locations of your company.
Understand the Legal Requirements
If you are going to franchise, you need to prepare a Franchise Disclosure Document, which gives potential franchisees a clear look behind the scenes at your company. Along with the disclosure document, you might need to fill out other legal paperwork or complete additional registration forms before you can sell franchises. Often, the specific rules for franchising vary by state and some states are a lot more strict than others. It’s a good idea to seek the advice of an attorney at this step if you haven’t already.
You need to consider how much you’ll charge franchisees for licensing, how much you’ll charge for royalties, what limitations you’ll place on franchisees, and how you expect them to obtain materials and equipment. For example, will you produce the materials the franchisees need and sell them those materials to sell at their own locations? Will franchisees have some say or choice in the products they sell?
Another thing to consider is how franchisees can market themselves. Will you have required colors, fonts and slogans to use or will you give each franchisee some leeway in designing marketing and advertising materials?
Screen and Evaluate Potential Franchisees
Before you start selling your brand to franchisees, it’s important to have a system in place to evaluate them. Consider what sorts of requirements you’ll have in place for business owners who want to buy a franchise from you. For example, will you only sell to franchisees with a demonstrated track record of owning or managing a business? Will you let first-time business owners franchise from you? If a franchisee has a history of bankruptcy or failed businesses, will that automatically exclude them from working with your business?
Consider Hiring Someone to Manage Franchisees
It can be helpful to designate a member of your company as the point person for franchisees or to hire someone to help train franchisees and make sure everything is in order. When you become a franchisor, you often take on additional responsibilities. No longer are you just responsible for managing the day to day at your company. You’re also responsible for making sure that your franchisees’ needs are met and that they are holding up their end of the deal. Having someone on your team who is experienced with managing franchises and franchisees can reduce your burden significantly.
Market Your Franchise
Just because you’ve decided to franchise your business doesn’t mean that franchisees will be lining up to buy. You need to market your franchise, just as you would marketing your company’s main product. It’s also important to be patient at this stage. Unless you go into franchising with a handful of potential franchisees lined up, it might take months (or longer) before you make a sale.
Offer Support and Guidance to Your Franchisees
Once you’ve sold your first franchise, don’t leave your franchisees on their own. Be there for them, either by scheduling occasional meetings or check-ins or by making yourself or your point person available for questions.
Is franchising right for you? The team at New Direction Capital can review your options for growth and help you make the right choice when it comes to scaling and expanding your company. Contact us today to learn more.
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