Do you have these questions in your mind?
- Want to expand your business?
- Can franchising grow business?
- Is it the right time to franchise your business yet?
- How to franchise your business?
In this article, you will find answers to all your questions. So please grab a cup of coffee, and let’s get started.
Table of Contents
What does Franchising your Business mean?
A franchise is a business model wherein you grant licenses to franchisees (other businesses) to operate the business in your name.
Franchising enables them to take advantage of your established Brand Name, Business System. They open a new outlet (to sell your products / services) using a franchise agreement with specific terms, royalties, and business location.
Think of Starbucks, Domino, and many other businesses you’ve seen in multiple cities. Each outlet is a franchisee with its management but the same product and services that pay a fee to the franchisor (the owner) to rent its “brand name.”
Pros and Cons of franchising your Business
Businesses are like chess; every step counts, and every move matters, so before anything.
Let’s weigh the benefits and drawbacks of franchising your Business and whether franchising is right for you.
Pros
- With franchisee fees and other payments, your Business could earn a regular income stream without too much of your active involvement.
- New franchises mean new markets and the chance to rapidly increase your clients, which can eventually lead to demand for more franchises.
- In addition to the franchising fees you’ll collect, income from royalties, ongoing fees, and more will expand your revenue stream.
Cons
- Upfront cost
- The total cost of approval for a franchise operation can cost you thousands of dollars before a single franchise is open.
- Possible disputes
- Disagreements with franchisees can be issues related to operations and may have to be dealt with in arbitration.
- Slow profit timeline
- Opening franchises are expensive, and it takes a bit of time to neutralize and become profitable.
The long franchising game could prove difficult to sustain if money is limited. In addition, its high upfront costs and possible legal disputes require good financial planning.
What does it cost to franchise your business?
The cost of franchising depends on the nature of your business, complexity, and size; generally, it can range anywhere from $20,000 to $50,000.
Costs you will incur are:
- Franchise research and development
Before you franchise your business, conduct market research, test your systems and procedures, and create a pilot operation. - Franchise package development
To provide the necessary support to franchisees, you will need to prepare a package containing the systems, procedures, training, sales, and operation manuals. - Recruiting
To find and attract franchisees, you must invest in some prospectus, advertisement, or franchise exhibitions.
How Long Does It Take Franchise a Business?
Including preparation and everything, franchising typically requires 3 to 6 months. The process can move more quickly depending on how complicated or straightforward your business model is.
Types of franchise models to offer
- Franchise
It is the primary franchise model you select a franchisee to run your business with the rights of using the brand, Tradename, IP, and software necessary in the company’s course.
- Master Licensing
It is another franchise model wherein the franchisor grants a license to a “master franchisee” to use the franchisor’s brand and system to grant franchises to “sub-franchisees” in the foreign territory.
It is accountable to the franchisor for the growth and performance of the brand in the region.
This franchise model may seem easy, but it has risks and complications. It might assist the franchisor in management and financial burden and danger, but here, the franchisor has less control over the overall brand/system in the territory.
- Area Developer
This model is more or less like the franchise model, except that the franchisee is granted the right to open multiple franchise units in the agreed territory, usually following a development schedule.
In this case, the franchisee will likely be more experienced in the industry and have substantial resources to meet the development schedule.
Get your business ready to roll out a franchise
There are 4 crucial action points to get your business ready for a franchise:
1. Establish a business name and Achieve financial stability
Your business needs to have existed for at least 12 months and have a successful track record; With that, your business will be an attractive offer to franchisees.
A business plan can show the potential for further growth and the ease of replicating your business model.
2. Conduct a pilot franchise operation
It involves running a franchise outlet for at least 1 year to identify the franchise model’s strengths and weaknesses and test the operation manual and the business format.
It helps you gather information about your franchise’s performance and viability. Not only does this reduce the risk of a failed franchise, but it also increases the credibility and attractiveness of the franchise.
3. Price your business franchise opportunity
without Proper valuation of your business and the franchise opportunity, you may either undervalue or overvalue the franchise from a finance industry professional.
The franchise’s value is based on your gross turnover, entry cost into the industry, and cost to a buyer of creating the same business without a franchise, such as buying equipment, developing products, and marketing.
And the size of the franchise region and exclusivity.
4. Get your paperwork sorted
When you franchise your business, you’ll need to prepare the legal documents, pre-sale disclosures, and operational requirements to comply with the federal and state franchise laws to sell franchises.
It includes your franchise agreement securing your intellectual property rights.
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Franchise your Business in 4 Steps
Step 1. Evaluate your business first
Is Franchising Right for Your Business? Is it the right time?
When franchising your business, the most crucial step is first to determine whether franchising is right for your business.
Like every good business decision, the decision to franchise your small business needs to align with your long-term goals.
Some of the pointers that you should consider when making this judgment include the following:
- Consider your concept.
- Check your financials.
- Gather market research.
- Prepare for change.
- Evaluate other alternatives
Step 2. Complete all legal requirements and documentation
- Register and File Your FDD
- Draft a franchise agreement
- Register Your Trademarks
Step 3. Prepare Your Operations Manual
The franchise operations manual is a guide for your franchise system, which will serve as an essential communication tool that allows you to inform franchisees about necessary system standards and requirements.
Operations manuals typically include the following topics and information:
- Confidentiality and legal work
- Brand and team introduction
- Your brand goals and objective
- Product and service requirement
- Development of the franchised business
- Training
- Operating standards and requirement
- Marketing
Legal work and documentation are complex processes; you will need to hire a lawyer who specializes in franchising particularly and has considerable experience in helping businesses like yours turn into a franchise.
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Step 4. Select a potential franchisee
The success of your brand will depend on the commitment and business acumen of your franchise network, so better be careful while choosing a franchisee for your business.
Consider the following:
- If they have the same passion and vision for the business?
- Is your franchise a good fit for them?
- Will they be able to maintain your standards?
- Do they have any previous experience in the industry?
- If they have the necessary financial means
How to Make money out of franchising
There are 6 main ways to make money from franchising your business:
1. Initial franchise fee
This fee can be considered your development or exclusivity fee and is usually paid by the franchisee for the use of IP or the exclusive right to market and sell franchise products / services within the specified territory.
2. Store opening fee
You can charge this as a separate upfront fee for each additional unit or store opened by the franchisee in their designated region.
3. Service fee or royalty
It is the regular fee paid by the franchisee, calculated based on the franchisee’s turnover or product sold by the franchisee.
4. Training fees
You may include a training fee in your franchise agreement. It ensures the franchisee understands the importance of consistency and increases profit for the franchisor.
5. Marketing contribution fees
You can specify a certain percentage as a marketing contribution for the franchisee in your franchise agreement, as whatever you spend on marketing benefits all your franchise network.
6. Other fees may include:
Support fees:
In case the franchisee requires additional IT or other training.
Commercial lease cost:
In case you rent the commercial premises or machinery your franchisee is operating from.
Franchising vs. Licensing: What’s the Difference?
Franchising and licensing may seem similar, but these two are different ways to share your brand in exchange for a fee.
The significant difference center around control and operation:
- Franchise agreement:
You Grant access to your comprehensive brand information to a franchisee that’s required to operate a business at a new location under an already successful business model.
Example: Domino’s outlet is franchised out in agreement with a local entrepreneur.
- License agreement:
You grant access only to specific intellectual property to the licensee, like a brand name, logo, or a particular character of your business.
Example: Manga licenses its characters to appear on a retailer’s clothing line.
Conclusion
If you are planning to expand your business, franchising could be a quick and easy way to do that; however, this expansion model has some pros and cons, which may or may not suit your business and its goals and objective.
So, suppose you are planning to expand your business. In that case, you must evaluate your business first, value your name and choose a franchisee carefully, as whoever you share your franchise with will affect your business.
Want to Save Time in your Business Launch?
- How to Create a Business Plan
- What is Market Research, USP, Niche & Positioning
- How to find a suitable name for your business
- How to create your brand image (Logo + Branding)
- How to Register Your Business
- How to Register for Taxes
- How to get Licenses / Permits
- How to Open a Business Bank Account
- How to Get Business Insurance
- Which Payment Processing Terminal (POS) to buy
- How to get Funds for your Business
- How to do Sales & Marketing – Offline & Online
- Why have a Website / Blog / Social Media
- How to build & train your Dream Team
- How to provide Excellent Customer Service
- Buying an Old Business Vs Franchisee Vs Own Brand from Scratch
Handpicked inspirational Youtube videos for you
What Stage You Need to be at to Franchise your Business – YT Channel ‘The Internicola Law Firm’
How Franchising Works : Mcdonalds Franchise Example – YT Channel ‘Tariq Johnson’
How to Prepare to Franchise Your Business – YT Channel – ‘The Internicola Law Firm’
A. You may need to register your franchise according to the state you live in, as it depends on the state.
Some states may require registration and charge franchise fee, while others require that you file your franchise disclosure document with the state or simply obtain a registered trademark for it.
A. Licensing is not an alternative to franchising.
Licensing rights extend to intellectual property, like a brand’s name or a brand’s logo, while franchising grants rights to entire business models, products, and services.
Franchising is an exciting way to grow your business if you will lay the proper groundwork in advance. It offers new markets, expanded clientele pools, and larger profits, but it also requires lots of money and time and efforts .
A. To make a attractive franchise offer you need to-
- Evaluate your brand presence
- Make right value proposition
- Present a vaible business plan
- Develope clear SOPs and code of conduct
- Develop your training programs
