Primer On How To Franchise A Business

How To Franchise A Business

Converting a business into a franchise can be very lucrative financially as it is one of the best ways to grow your business at a very fast pace. The US Census Bureau estimates that franchises generated revenue of $1.3 trillion in the year 2007 and had close to 8 million people working for them.

The franchise business is so lucrative that there are specialty consultancies that offer guidance on how to franchise a business. In the article below, we will take a close look at the ways on how to franchise a business.

You Better Know Your Business

Before you start with the process of franchising your business, you need to be sure that you are aware of all the processes in your business. It is easier said than done. Most of the business owners are used to running their business on intuition where things just keep working and any emergency or problem is dealt with when it happens.

It is not easy for individual business owners to document every single process that is necessary for running their business. On the other hand, franchises need to be told each and everything to run their business including ordering supplies, keeping books, decorations, placement of pots and flowers and many other things.

In simple terms, every single process will need to be carefully outlined for the franchises to follow. For this to happen, the business owner needs to be acutely aware of all the processes that make the business successful. Franchising a business is similar to running a company for the very first time.

The best way to do this is to start a store from scratch and go through the whole process of setting up business again. This will help the business owner in experiencing first-hand various things that a franchise may need to be told and guided to have a successful franchise business.

As mentioned above, it can be very lucrative but you should know everything in and out absout how to franchise a business.

Do Market Research

It is extremely important to keep in mind that turning a franchisor is not an easy thing and it costs a lot of time and money. There is a long list of requirements that a person that a business needs to fulfill to be able to sell franchises in all the states in the US. Fulfilling all the document requirements takes a lot of time and money.

Therefore, it is extremely important to do market research to ensure that there is scope for franchising the type of business you have. You need to study whether there is consumer demand for the type of product or service you are selling as a franchise.

Get a Grip on the Legal Issues

Legal issues matter a lot when it comes to franchising your business. One of most important things for business owners who are looking to start franchises is the item 19 on the FDD filing. This item outlines the financial performance of the business.

Most of the business owners won’t have the necessary expertise to get a hold on all the legal issues involved in franchising your business. Therefore, it is recommended to hire the services of a professional team to take care of all the legal issues.

There is a lot of information available on the Internet regarding legal issues related to franchising. There is also an International Franchise Association that offers a lot of resources on legal issues related to franchising. It is recommended to go through the various reports published by the Association to equip yourself with legal knowledge regarding franchising.

Finalize the Franchise Model

Once you have done market research and taken care of all the legal issues, it is time to sit down and decide the franchise model. It should include the franchise agreement, royalty percentage, size of territory, geographical areas, training programmed, net worth of franchises, marketing of franchises and other such important issues.

As mentioned above, the franchises will need to be guided at each step.

Decide the Rate of Growth

It is very exciting to think of growing at a breakneck pace but more often than not, the growth rate needs to be managed to ensure that the business remains stable and profitable for everyone involved in the business including the corporate and the franchises. Some businesses make the mistake of opening too many franchises at a fast pace and they are unable to support so many franchises suddenly.

Such issues lead to loss for franchisee owners and bad reputation for the business that may hamper the growth of their franchises. Therefore, it is important to allow the growth rate to climb up to a level that is comfortable for the business to support.

It is also important to grow only in areas where there is brand recognition for the business as it is difficult to grow a franchisee business without adequate brand recognition.

Choose Franchises Carefully

It is important that a business chooses the franchises extremely carefully as they will be using the name of your company on the franchise. In other words, the franchise is also a representation of your brand. You have spent a lot of time and money in building your brand and therefore, it is your duty to ensure that the brand is in safe hands and franchise is not going to do anything to damage the brand.

It has been commonly seen that people who are looking to run franchises fail when they do not take into account the hard work required to run a franchise successfully. Running a business requires passion but also acute business sense. Also, the franchise owners need to be adequately funded to ensure that they are able to ride tough times.

Many businesses make the mistake of giving franchise to anyone who is ready to pay some money and start a franchise. This is a very big mistake as giving franchise to the people who are not ready puts a big question mark on the brand recognition in the market. One should take into account the income expectations of the potential franchise owners as well as their previous business experience in running similar franchises.

Set Restrictions on Franchises

It is true that franchises need some freedom to grow as a small business. After all, they will need to take certain decisions on their own to ensure the success of their business. However, this does not mean that franchises should be given a free hand to decide everything. They should be given freedom but there should be restrictions on certain aspects to ensure that there is no compromise with the brand image.

For instance, franchisors may require franchises to spend a certain minimum amount on advertising locally. This will help in growing the brand and the franchise. Similarly, franchisor may put restrictions on the type of decorations and the uniform worn by the franchise staff.

It is also important to keep in mind that the restrictions on the franchise should not be too stringent, as it will hamper the growth of the franchise business.

Support the Franchises

Providing support to franchise owners is extremely important if franchisors want their business to survive and grow. There is a lot of competition in every single business vertical and therefore, it is not possible for small business owners to grow their franchisee without adequate guidance from the franchisors.

Most of the franchisee owners are small businesses that run the franchise for livelihood and need to take care of a variety of things to continue daily operations. However, they need adequate support from the corporate office on things related to advertising, sourcing of the raw materials, staff training and other such things.

The corporate office should also offer them help on the ways to fight competition and grow their business. Constant communication with the franchise owners is extremely important. It allows the business owners to get first hand knowledge of the challenges being faced by the franchise owners.

This is just a primer on how to franchise a business. You should read further on legal requirements as well as case studies of successful franchises.