If you’re looking for a way to grow revenues, expand your brand image, or open multiple locations, without committing the capital and operational management time necessary for company-owned units, franchising may be a profitable option. When you franchise your business, you create a repeatable and teachable business operations system and then sell franchises to other entrepreneurs who will own and operate their own version of your business concept. The process takes time, involves considerable up-front costs, and requires a lot of legal paperwork. With the right concept, proper planning, and sufficient start-up capital, franchising can be a great way to turn your small business into a bigger business.
Only certain types of businesses can be successfully franchised. You need a superior product or service that is in demand, an operations system that can be taught to others, and a business concept that is easy to duplicate in multiple locations. There are more than 75 industries that operate within the franchising format, including automotive, electronics, retail, food, financial services, sports and recreation, and travel.
If your business is not ideally suited to franchising, alternative growth strategies include cooperative organizations, where multiple businesses in a particular industry band together to form a collective organization; distributorships, where you allow others to leverage your brand and sell your products through their own channels; and licensing, where you collect royalties for the use of your trademark by a company that produces related products.
Franchising is regulated by the Federal Trade Commission and, in fifteen states, by state laws. Working with a franchise attorney, you must develop a Franchise Agreement and a Franchise Disclosure Document, which together provide accurate, detailed information and disclosures to prospective franchisees so they can make informed decisions about your franchise offer.
Once you’re ready to commit the time and capital necessary to become a franchisor, you need to design your franchise operations system, prepare, submit, and register all legal documents, hire staff to manage your franchise selling and marketing, and build a support network for your franchisees, including the development of training programs and advertising initiatives.