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Franchising Your Business - the Key Questions to Consider

Guest post by: Mary Tomzack

Article Overview: Franchising Your Business: Key Questions to Consider Why Does Franchising Make Sense? What Does It Take to Succeed as a Franchise? What are the Procedures to Franchise a Business? Becoming a franchisor can be the fastest, most efficient, and, in most cases, the most cost-effective way to expand a business. Many successful business owners investigate franchising a number of reasons.

Franchising Your Business - the Key Questions to Consider

Why does franchising make sense?

If your business is "franchise-able", you should seriously consider this option. Becoming a franchise is the fastest, most efficient, and, in many cases, the most cost-effective way to expand a business.

Many successful business owners investigate franchising for the following reasons:

-Franchising entails a far lower capital investment than opening company units or territories.
-Franchisees provide most of the growth capital through franchise fees and royalty fees.
-The franchisee has a vested interest in making the business work and will generally be much more motivated than hired management.
-Many units can be opened in a short time which can eventually lead to brand name power.

But the transformation of an independent business to a franchise system is not so easy. It requires capital (possibly a very large amount for some fledgling businesses) and a considerable amount of time. So before you commit to any plan, you need to determine if your business is "franchise-able".

What does it take to succeed as a franchise?

While there's no sure path to success, there are ways you can increase or decrease your odds. Review the guidelines below to evaluate whether your business might succeed as a franchise:

1. Your business should have at least one unit or territory operating successfully and profitably- but it is preferable that your business has three or four units, or coverage of a substantial population or territory.
2. You should have a registerable mark for your business. If you sell products, you must register a trademark; if you sell services, you register a service mark. This is essential since your goal is to have an identifiable brand.
3. The business should have long-term market potential. Businesses which capitalize on fads are not good candidates since the product or service may be passé in a few years or less. Try to make a reasonable assessment that the business product or service will be in demand for at least the next 5-10 years. Businesses which are unique in some way lend themselves well to franchising.
4. The operation of the business must be teachable and easily repeatable. Remember that in many franchises the franchisee has no prior knowledge of the business. The smallest details of operating the business must be taught to the franchisee so that he/she can be successful. Many businesses are not transferable to others because much of the decision-making and day-to-day operations emanate from an owner who has honed certain skills over many years and has certain talents which cannot be taught.
5. The business owner should be sufficiently capitalized so as to not cut corners on the legal and consulting expense necessary to properly register the franchise and to formulate strategy. In addition, as a franchisor, you will be responsible for the formulation and implementation of a training program and must provide a comprehensive manual for franchisee use. Lastly, the franchisor should have employees on staff to administer to franchisee needs; this may entail additional hiring of personnel.

What are the procedures to franchise a business?

A prospective franchisor should allocate approximately one year’s time to get their concept market-ready. The cost of the project to the new franchisor varies, depending upon how much work is done inside the company, the complexity of the concept, and the amount of money allotted to the sales and marketing function. Thus the total costs for franchising an existing business may vary from a low of $50,000 to a high of hundreds of thousands or more.


Who will you need to work with to franchise your business?

There are a number of professionals with which you will likely engage in taking a standalone business and expanding it into a franchise system. The most common advisors include:

1. A franchise consultant (who shepherds the process from start to finish and will typically advise you on when and why to retain the services of the other persons whom you will hire). It's critically important to ask any franchise consultant, before you retain their services, what their successes have been in launching franchises. You should request references and follow up with those references with a few phone calls to confirm the success stories that the consultant tells you.

2. A franchise lawyer (who will typically advise you on the legal aspects of the Franchise Disclosure Document). As with the consultant, you should request references and follow up. In addition, be sure you retain an attorney with franchise-specific experience - your uncle the real estate lawyer will be much less efficient and could possibly put you in jeopardy as a franchisor should you fail to meet certain requirements in your disclosure documents and franchise agreement.

3. An accountant (who will help you to assemble your books and prepare your financials for an official audit).

Related Articles
  The Top 7 reasons why Franchising is Better than a Brand New Business
  Successful Franchisee Traits
  I Want to Take My Business to the Next Level
  Newsworthy Trends in Franchising
  What is franchising? My personal definition!
  Factors to Consider Before Choosing a Franchise
  Franchising Is a Better Path to Success than Opening a StandAlone Business
  Fearing Franchise Losses
  Should I Franchise My Business
  Franchising Overview
  Franchising vs. Licensing
  Franchising can change the world
  FRANCHISING PERSPECTIVE
  Find the Right Franchise Opportunity for You
  The Fear of Purchasing a Franchise
  Financing Your Franchise Business
  ARE FRANCHISES CHANGING WITH THE TIMES?
  Franchising Can Be a Legal Money Machine
  Is franchising for you?
  Getting the Best Out of Your Franchise Agreement

Article Tags: franchisor, how to create a franchise, how to franchise, how to franchise your business, should I franchise, should you franchise



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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
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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.
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Franchising & Licensing Can Be The Same Thing - FTC Rule 436 defines franchising as anyone offering an Agreement that contains these 3 things: 1. Licensing a "Mark" - which can be a trade name, service mark, commercial symbol, slogan, etc. 2. In the body of the Agreement, there contains, significant controls and assistance. 3. The licensee is paying the licensor in excess of $500 within the first six months of the actual offering of the business. Licensing and Franchising can mean the same thing today. If you do not decide to franchise and comply with FTC Rule 436, you may be in violation of Business Opportunity Laws that exist in 24 individual States.


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