Expanding your business can help you have a higher profit. Franchising and licensing are two ways to reach a broader audience to build your revenue. 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:
- Franchise agreement: Gives the franchisee access to comprehensive information that’s needed to create a new location under an already successful business model
- Best for: service-based businesses
- Example: A McDonald’s, franchised by the corporation in agreement with a local entrepreneur
- License agreement: Gives the licensee access only to specific intellectual property, like a logo or a particular character
- Best for: Product-centric businesses
- Example: Disney licenses the Mickey Mouse character to appear on a line of sweatshirts from a retailer.
In this thought post, I will focus on some tips to franchise your business. Franchising is a type of agreement that reproduces a successful business model over 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. Before you can figure out how to franchise your business, you need to delineate exactly what makes your business special. What is your business model and how will franchisees put it into action?
The type of franchise that’s right for you depends on the size and complexity of your business as well as the industry in which you are operating. If you franchise your business, you’ll likely create one of four different types of franchises:
- Job franchise: Businesses offering a service on behalf of the franchisor. Example: travel agencies;
- Distribution franchise: Product-centric businesses that also offer related services. Example: car repair shops.
- Business format franchise: Entire established business models provided by the franchisor. Example: fast food restaurants;
- Investment franchise: Large, service-centric business. Example: motels.
So how long does it take to franchise a business? Well, the answer is it varies. The tools necessary for franchising a business can be developed in approximately three months from the completion of the implementation plan, but state registrations may delay a company’s ability to sell in certain states for another three to four months. In other words, the franchise development process is dependent on how complicated your business model is and other “outside” approvals to go from where you are today to being a franchiser legally able to offer and sell franchises.
The cost of a well-designed franchise program varies depending on the strategy chosen and the desired speed of expansion. Some key items that affect the cost include the industry and the state of residence. Sometimes, it can cost less than $20,000 total, but some franchises push costs near $100,000 or higher. 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.
If you’re wondering how to get organized, it’s best to write down your company’s business model and guidelines of how you do business. This will form the backbone for your franchise and educate franchisees in the way that you expect them to behave. Here are some more tips to getting started:
- IS FRANCHISING RIGHT FOR YOUR BUSINESS. Your business, business systems, and, personal goals need to align with franchising. When you franchise you’ll be responsible for recruiting, training, and supporting franchisees as your brand grows. So, ask yourself the following questions:
- Is my business healthy and profitable?
- Am I able to afford franchising and expansion, or borrow necessary funding?
- Can I clone my business model effectively?
- Have I already expanded to another location successfully?
- Do I have the capability to market and sell my franchise opportunities?
- Am I comfortable acting as a teacher and supporter to franchisees?
- DEVELOP A STRATEGIC BUSINESS PLAN. If the decision to franchise a business is made, you should develop a business plan outlining the company’s growth and strategy for the next five years. A franchisor needs certain new capabilities and will need to ensure that these capabilities are seamlessly integrated into existing organizational functionality. The business plan should consider:
- FRANCHISE OPERATIONS MANUALS & TRAINING PROGRAMS. To ensure successful franchisees and maintain quality control, the franchisor will need to develop a state-of-the-art operations manual for its franchisees. Computer-based tools and programs are highly effective, as are training videos, and can be used for the franchisee, for the franchisee’s employees, and for corporate employees. You will be providing a confidential operations manual to your franchisees. Your operations manual must document and inform you franchisees about all system requirements and information needed to develop, open, and operate the franchised business. This manual will serve as a sales tool demonstrating franchisor competence to new prospects, as a training guide for new franchisees, as a reference guide for established franchisees, as a “liability limiter” for the franchisor, and as a legally binding quality control device for the entire chain. The franchisor should also develop training programs for use in conjunction with the operations manual.
- LEGAL DOCUMENTS. To be legally entitled to sell franchises, a Franchise Disclosure Document (FDD) is required to comply with federal and state specific franchise laws and should be specific to your business and the franchise that you are offering. The FDD will need to be registered and filed with appropriate state authorities on a national basis (23 states have such requirements). The franchisor will also need to maintain ongoing compliance (keeping registrations in force while actively selling) and will need to be able to document compliance with state and federal law on an ongoing basis. If you are seriously considering franchising, I strongly advise you to seek the legal counsel of a knowledgeable franchise professional prior to initiating any franchise efforts.
- Register your trademarks with the United States Patent and Trademark Office.
- You will need to establish a new franchise entity, typically a corporation or limited liability company. Your new franchise company will be in the business of selling franchises, supporting franchisees, and building systems to grow.
- Before you can sell franchises in franchise registration states (CA, IL, MD, NY, VA, etc…) or franchise filing states (FL, NC, SC, TX, etc…) you must file the appropriate applications and notices.
- FRANCHISE MARKETING PLANS. Even after your legal documents are complete, determining your initial franchise marketing/sales strategy and setting a budget is critical to selling franchises. Evaluate your target franchisees, target markets, interest in your franchise and a realistic budget for attracting, training, and supporting franchisees. This will require a specific marketing plan designed to get the franchisor’s message to the targeted franchise prospect.
- Once the prospect target has been identified, marketing tools will be required to assist in the sale of franchises. For instance, aggressive sales campaigns may require the development of a mini-brochure for use in direct mail campaigns and perhaps as a give-away at trade shows, a full-size franchise sales e-brochure, and a franchise sales video.
- The franchisor will need to understand the nuances of the sales process and the legal constraints of franchise sales. This needs to be assembled into a franchise sales training program.
- When franchising your business you must not dilute your brand. Make sure that as franchisees grow in number, they stay true to your original brand’s culture and message.
Franchising your business is just one way to grow your revenue. Be sure to consider all the other possibilities because once you “franchise your business” you’re just getting started. If you’d like some help discovering how to franchise your business, signup for a personalized free mentoring session.
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