Tweet

What You Need To Know About Franchising Your Business or Concept

Written by: Ken Hollowell

Article Overview: Your success depends on understanding how franchising works. Ken Hollowell discusses some the standard and more common parts of franchising.

What You Need To Know About Franchising Your Business or Concept

What You Need To Know About Franchising Your Business

The Success of Franchising

Never before in the history of marketing has a method been more successful for business owners to expand than in franchising. According to the U.S. Department of Commerce, franchising has a failure rate of only 3.7 percent.

Franchising is expected to reach $2 trillion by 2010, according to the Federal Trade Commission.

A survey was conducted with the help of the International Franchise Association to its franchisor membership and one of the questions that was asked to existing franchisees was…”Would you purchase your franchise if you had it to do over again?” The answer was positive from 93 percent of the owners. This confirms the success of franchising in the lives of franchise owners.


What is franchising?
To define franchising in one word would be “marketing”. Franchising is a very sophisticated method of marketing a product or service that just happened to be federally regulated in the United States and many foreign countries. Although franchising as a method of marketing can be dated back thousands of years ago, modern day franchising had its origin around 1850 when Singer Manufacturing Company began offering distribution agreements to individuals to represent their product. Franchising has come a long way since then.

Around the 1900’s, the oil and gas industries along with the automotive and bottling industries, used “trademark” franchising exclusively. By the mid 1930’s numerous businesses used “business format” franchising as their method of expansion. But by the 1950’s with businesses like McDonalds, franchising came into it’s own. It was not until October 21, 1979 that the federal government enacted FTC Rule 436 which requires franchisors to comply with various regulations and guidelines in the offering of a franchise. This rule is still required to this day.

What is a Franchise?
A franchise in a word is an “agreement”. It is the contractual relationship that binds the parties together. The true value of any franchise will depend on the agreement itself. It is very important that the agreement be marketable too!

Some of the items that require careful consideration are:

• The initial franchise fee
• The trademarks and use of
• The continuing fees (royalties)
• The terms and conditions of the agreement
• The territory
• The training provided
• The support of the franchisor

Who is Considered a Franchisor?
The federal government says that any business that is being offered to the general public that requires the potential buyer to sign a written contract and that contract contains their three (3) elements:

• The “Marks”, tradename, service marks, or trademark
• Significant controls or assistance
• Remuneration of $500 or more within a time period of 6 months

What the FTC Rule Requires
FTC Rule 436 requires that the franchisor comply with several basic things. All have to do with the actual offering of the franchise to a potential buyers and the manner in which it is offered. They are:

Provide the potential buyer with full disclosure in a required format which identifies various items of disclosure (when using the Uniform Franchise Offering Circular, 23 items with numerous sub items are required).

Provide the full disclosure document 10 business days before you the buyer is required to pay any money or sign any agreement with the franchisor.

The franchisor is prohibited from giving “earning claims” or “projections” of earnings unless certain requirements are met by the franchisor.

Regulation States
In addition to the FTC Rule, there are 15 States that require separate registration to allow a franchisor to market the franchise within their jurisdiction. Those states are:
• Hawaii
• California
• Oregon
• Washington
• North Dakota
• South Dakota
• Minnesota
• Wisconsin
• Illinois
• Indiana
• Michigan
• Virginia
• New York
• Maryland
• Rhode Island

What do you need in developing a franchise?
The development of a franchising is a continuious process so long as you are offering franchises. Some of the items that you are going to need are as follows:
• Corporate Structure
• Federal Trade Mark Registration
• Audited Financial Statements
• Uniform Franchise Offering Circular
• Promotional & Marketing Materials (could be a web site)
• Manuals (Development & Operations)
• Franchisee Training Program
• Franchisee Support
• Registration in Regulatory States
• Profile of who your franchisees will be
• Marketing Procedures

How long does it take to develop a franchise?

What are the costs associated with franchising?
Some franchisors can begin the process with a budget of under $40,000. However, the costs are continuous just like development. If a franchisor elects to begin marketing while still in development, money will begin flowing into the franchisors bank account from the sale of franchises. This eases the financial burden of the franchisor. Recently a franchisor began franchising who had a limited budget but was committed to the venture and within 8 weeks of development had 12 franchises sold which brought into the company $300,000 in fees.

Does my business need to be in operation for a period of time before I franchise?
There are no requirements or restrictions concerning the business or length of time in existence. However, a track record that allows you to understand your business is important if you are going to teach others how to operate and run the business.

Related Articles
  Factors to Consider Before Choosing a Franchise
  Is it Ethical for a Franchiser to Sell his Concept as a Franchise?
  What is franchising? My personal definition!
  Should You Franchise Your Business?
  The Top 7 reasons why Franchising is Better than a Brand New Business

Article Tags: franchise consultant, ken hollowell, our business, profran consultants



Related Forum Posts
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital
Re: Hello EvanCarmichaelers, and Thanks! - "Carmichaelers" ..nice.. Over at the Young Entrepreneurs I'm going to start calling my readers "DSilvelers" - I like the sound of that! Welcome on board theFranchiseMarket. Do you run a Franchise Business or are involved in Franchising in anyway?
Top 19 Copywriting books - 1. Ogilvy on Advertising. David Ogilvy. Wiley. 2. Positioning: The Battle for your Mind. Al Ries and Jack Trout. Warner. 3. The New Positioning. Jack Trout. McGraw-Hill. 4. Tested Advertising Methods. John Caples. Prentice-Hall. 5. How to Make your Advertising Make Money. John Caples. Prentice-Hall. 6. Guerrilla Advertising. Jay Conrad Levinson. Houghton Mifflin. 7. Direct Mail Copy that Sells. Herschell Gordon Lewis. Prentice-Hall. 8. Sales Letters that Sizzle. Herschell Gordon Lewis. NTC Business Books. 9. Herschell Gordon Lewis on the Art of Writing Copy. Herschell Gordon Lewis. Prentice-Hall. 10. Romancing the Brand. David Martin. American Management Association. 11. The Art of Writing Advertising: Conversations with William Bernbach, Leo Burnett, George Gribbin, David Ogilvy, Rosser Reeves. NTC Business Books. 12. Confessions of an Advertising Man. David Ogilvy. NTC Business Books. 13. My Life in Advertising. Claude Hopkins. NTC Business Books. 14. Scientific Advertising. Claude Hopkins. NTC Business Books. 15. How to Become an Advertising Man. James Webb Young. NTC Business Books. 16. The Lasker Story as He Told It. NTC Business Books. 17. Advertising Concept and Copy. George Felton. Prentice Hall. 18. The Copy WorkShop Workbook. Bruce Bendinger. The Copy Workshop. 19. Hey, Whipple, Squeeze This: A Guide to Creating Great Ads. Luke Sullivan. Wiley. This should keep you busy for at least a year. Enjoy!
Re: Great start, but no finish - My advise is FOCUS on your business. Focusing is the main factor to succeed on business. If you have a great idea, then follow it only, don't look anywhere else. It is especially essential in an online business. Because there are a lot of mind blowing sales letters promising millions dolllars or overnight success, people find it difficult to concentrate on one business and they lose their energy. Concept is simple. 1- Have a good idea; 2- Build your business on it; 3- Monetize your business; 4- Promote it; 5- Build list of responsive customers; 6- Maintain You Business. Focusing and not fearing from competition (instead you can learn from competitiors) are main tips of billionaires ,BTW. Orxan
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

What Is The Foundation for Your Vision?

Are You Remarkable Enough?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.