An Overview of the Franchising Process
The first step in the franchising process is to decide if you’re ready to take on this commitment. Becoming a franchisor requires you to engage in a different set of management activities than you’ve been accustomed to as a business owner. You have to be a salesperson, enticing other entrepreneurs to invest in your franchise system. You’ll need to support your franchisees and help them become successful.
To navigate the federal and state franchising regulations, you should hire legal and consulting help. Preparing documents, marketing materials, advertising, and training programs could take an initial investment of up to $250,000, or more. And that’s on top of your day-to-day operating expenses. Run some numbers to ensure that your franchises will produce enough profits to make the investment in and management of the franchise system worthwhile.
Here are a few of the next steps in the process of becoming a franchisor.
Design Your Franchise Model
As you work with your attorney to draw up the legal documents, you need to make decisions about how your franchise system will operate. Key points to consider include:
- Franchise fee and annual royalty percentage
- Your franchise agreement term and renewal conditions
- The geographic areas you will go into and the specific territory rights for each franchisee
- The amount of start-up and ongoing training you will provide
- Whether franchisees must buy products or equipment from your company
- The qualifications, experience, and financial standing you want in a franchisee
- How you will market and sell your franchises
These factors all affect your long-term profit potential, so take the time to get everything right. The difference between a five percent and a six percent royalty may not seem like much at the outset. But over time and with multiple franchises bringing in revenue, a one percent lower royalty could mean several less zeroes at the end of the numbers on your royalty checks.
Submit Your Legal Documents and Register as a Franchisor
Once you have your franchise agreement and franchise disclosure document buttoned up, you need to submit the paperwork to the Federal Trade Commission. At this point, you may immediately start selling in any of the states that do not require registration or notice. If you are going to do business in one of the 15 states that require registration, you’ll need to file under your states’ statutes. It can sometimes take several months to get comments on and approval for your state franchise registration. Your franchise attorney can help with the registration process.
Hire Franchise Management Staff
It takes time and effort to market and sell your franchises and you still have a business to run. So you may want to add several staff members to focus solely on managing the franchise work. You may need a trainer, a salesperson who can also interface with franchisees and answer questions, a marketing and advertising specialist, and, if your franchisees will be buying supplies from your company, someone to process and ship orders.
Staffing may represent the greatest part of your franchise overhead costs. But don’t make the mistake of trying to stretch your staff too thin in an effort to save money. Invest in enough manpower to support your franchise network efficiently. This is particularly true for training, as inadequate training and preparation can leave your franchisees unable to implement your system successfully.
Sell Your Franchises
All the brilliant systems in the world won’t do you any good if you can’t convince entrepreneurs to invest in your franchises and then operate them profitably. Prospective franchisees will be putting up a lot of capital and making a huge investment in their time to buy your concept. It may be one of the biggest decisions they make in their life. You’re asking a person to spend tens of thousands of dollars, and countless hours to go into a business they’ve never been in before and run it according to your rules. You will need to tell a compelling story and back it up with hard numbers to show why your business is worth that kind of trust.
Provide Support to Your Franchisees
To be a successful franchisor, you need successful franchisees. It’s up to you to teach them how to run the business and protect your brand. You do that with comprehensive training and ongoing marketing support.
Initial start-up training is best performed in person at your facilities. Some ongoing training can be provided online through webinars and static learning modules. Often, phone calls are all that’s needed to answer questions and clear up minor issues. Comprehensive training and testing will create and maintain a high level of quality control and ensure a uniform experience for customers no matter which franchise outlet they visit.
Marketing and advertising your growing chain is necessary to drive customers to franchise locations. This encompasses everything from radio, print, and online ads, to uniforms, logos, fliers, and in-store promotions. Be sure to budget generously for advertising because it’s a requirement for long-term success.