Your business is running, no, it’s sprinting and you’ve realized that you might actually be onto something here. Your business model has been tweaked and fine-tuned into a successful model that you know works. You want to play with the big boys now and you’re thinking about taking the next leap – franchising your business.
If you have a small successful business that you feel could do just as well in the town next door, then franchising may be one of the best ways to go. And if you plan it just right, you may well be on your way to dominating the market – aim high!
Here, we’ve brought some top tips on how to franchise your business the smart way.
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What’s the difference between a business and a franchise?
Most franchises are actually ‘small businesses’ but it’s important not to get the two mixed up.
A ‘small business’ is any form of product or service that is exchanged for money or other goods and services.
A franchise on the other hand, is a business whereby the owners, also known as the “franchisers” are granted by either a company or the government to sell the rights to their business to third-party outlets – the “franchisees”. This enables the franchisees to carry out the business’s activities in another location.
A franchisor will need to provide to the franchisee it’s:
- Trade name
- Products and services
- The entire system and know-how for operating the business
Franchises are everywhere you turn, think about McDonald’s, UPS and Subway, you know when you walk in there what to expect no matter where you are in the world. Their business model is successful and familiar which means the franchisee has the security of knowing that the business model works before starting.
There’s one main difference between a chain and franchise. In a chain, there is one parent company that owns all of the locations and handles the management of the entire business. In a franchise, however, independent owners will operate the individual stores.
Before we get to the tips of franchising, you may now be wondering if franchising is right for your business, or maybe even a chain would be better off.
There’s no crystal ball to look into the future and see if franchising is the right move, though we certainly wish there was! The only way you can really know if franchising your business is the right move is by sitting down with a franchise attorney, consultant, or perhaps someone you personally know who has franchised their business already.
Major benefits of franchising:
- Capital expansion – franchisees will pay to buy outlets meaning you can grow your number of locations without actually using much of your own capital.
- Just a pinch of growth risk – franchising your business will have minimal growth risk with very high financial returns. If you were to have a chain, you would need to take on far more risk whereas, with franchising, you put very little money into adding more and more locations. You may be looking at getting higher returns from franchising than if you were to open a chain and run it yourself.
Disadvantages of franchising:
- Less control – franchising may not be the best idea for the control freaks among you. You can’t tell a franchisee to do it your way as you can with your own employees. Each branch has its own independent business owner which could lead to some conflict down the line.
- Flexibility challenges – if you come up with a new idea (product or service), you’d have to make sure your franchisees are also onboard which could make it more difficult to make your business grow or keep up with the market. You’d have to negotiate with them to make sure they accept whatever it is you want to introduce. Having this in writing before starting is therefore ideal.
How to franchise your business:
You’ve looked at the pros and cons and decided that going from a business to franchise could be a good option for your business but now you’re wondering exactly how to franchise business operations and get the process started…
Here are a few tips to get you through this transition phase
1. Make your business’s holy bible
Before you even get the process started, you’ll need to make sure you’re organized. Franchisees will need to know how your business operates to make their store just as successful as yours.
For this, you’ll need to write up your business’s holy bible, that is, a manual detailing the operations of your business to hand over to franchisees and get them started. This will need to be detailed with your policies, best practices etc. Even if you don’t decide to franchise in the end, this manual will surely be useful in the future.
2. Get yourself a good attorney
This is not a question. You will need an expert franchise attorney during the process. Here you’ll need to fill out a variety of documents with your attorney including a franchise disclosure document (for those in the US). This may seem like a lot of paperwork and a slightly daunting process, but armed with a good franchise attorney, he or she will walk you through the steps.
3. Carefully select franchisees
Of course, everyone wants to make sure that their franchisees are at the top of their game, after all, this person is representing YOU, but it’s also important that you get along with the person. You don’t have to be best buds, but you’ll need to be able to do business with him or her effectively, without World War III breaking out.
Your franchisees should have demonstrated in the past that they are capable of running a business, hopefully, love your brand, and be reasonable. Make a check-list of qualities you’re looking for and do not settle. This is your business’s reputation on the line!
4. Location, location, location
Where exactly are you planning on opening up your mini-mes? Down the road? Center of town? The next town? The next state?
Consider opening up your first franchise a little close to home so that people will hopefully recognize it, but also not too close – you don’t want it to harm your sales at the mother location. Then as you expand, work your way out. Keep in mind that you’ll likely want to keep an eye on these locations so try and make sure they are accessible before opening a shop in the middle of the desert.
5. Be there for your franchisees
The key in this is communication. Don’t let their calls go to voicemail or leaving them hanging for more than 24 hours. Take those calls and show support, let them know you are there for them and are happy to help in anyway. After all, their success is also yours.
You may also want to set up a way that your franchisees can communicate with one another.
The most expensive part of the franchising process is right at the very beginning – when all the legal documents need taking care of and the franchisees need training and assistance in setting up.
How long is a piece of string? Giving a general figure for how much it will cost to go from business to franchise is a bit like asking how long a piece of string is. It really depends on the business and the decisions you take. Costs will include:
- Trademarking – this is something you may or may not have already done
- Operations manual – the ‘business bible’ we spoke of earlier needs to be created. Creating it in-house is significantly cheaper than an outside development firm.
- Legal fees – this is the nasty one. Your contract and franchise disclosure document won’t come cheap and the documents could reach pages in the hundreds. The entire cost could set you back $20,000-$30,000.
- Franchise registration legal fees – A national filing will cost around $6,000 for the initial fees though there may be more to come for added legal fees over the course of the process which can vary. Staying closer to home will work out far cheaper than going national. We advise taking on region by region.
- Accountant fees for an audit – this varies greatly and will cost anywhere between $4,000 to $15,000.
- Recruitment fees for franchisees – this is totally up to you how much you’re willing to spend and could even do this in-house.
For those that are set on franchising their business but aren’t sure they can afford the initial fees, you’ll need to get yourself a franchise business loan. Make sure you’ve first weighed the pros and cons to see if franchising is something that’s beneficial for your business model.
Lending Express can help find the best loan available with your qualifications. One application will cross-reference your needs with over 40 of its lending partners to make sure you get the loan you want.
Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.