Are You Ready to Franchise Your Business? Steps In The Franchising Process

1. The Franchise Assessment: Is Your Business Franchisable?

Since franchising starts with you, your business and your goals, the first step is to determine if franchising is even right for you and whether or not your business is franchisable. The five key factors that determine whether your business is franchisable are:

1. Is your business successful?

2. Is your business scalable?

3. Is your brand protectable?

4. Are you committed to growing a franchise system?

5. Do you have the right budget?

2. Assessing Your Business and Brand

One of the biggest secrets to franchising is that, as a business and legal model, franchising is extremely flexible and when done correctly must be unique to your business and goals and must differentiate your new franchise system from competitors. To do this, you should evaluate your business and brand – their strengths, weaknesses, competitive advantages, unique selling points, legal protections and future development goals.

3. Competitive Franchise Study

As a franchisor, your competitors will be other franchisors and franchise systems. Some of these competitors will be in the same industry as you and others may be in a different industry but nevertheless compete with you for prospective franchisees. To establish a baseline, we recommend that you obtain a competitive franchise study to evaluate and compare the metrics associated with three comparable franchise systems. The purpose is not to copy these competing systems but, rather, to understand them and to create a baseline when considering how you can structure your system to stand out and offer better unit economics for franchisees.

4. The Franchise Blueprint

Establishing and creating a franchise system is very much a process that evolves over time. Once you define your goals, your business and your brand and after completing a competitive franchise study, then a blue print mapping out the structure for your franchise system can be created including:

1. Franchise fees and establishing a franchise fee structure that is competitive and encourages potential multi-unit development;

2. Royalty fees and establishing a royalty fee structure that rewards franchisees for success and one that achieves your growth and development goals;

3. Multi-Unit opportunities and whether or not your franchise system will be focused on single unit franchise opportunities or multi-unit franchise opportunities with development agreements;

4. Territory sizes, whether or not franchisees will be granted operating territories, how to manage franchisee operating territories and forms of protection that may or may not be granted to franchisees;

5. Proprietary products and sources of supply, including the identification of core products and services that must be purchased from you or your designees and whether or not you may generate additional revenue from your suppliers; and

6. Many other factors, including factors unique to you and your business and your strategic plan for differentiating your franchise system, attracting franchisees and attracting potential franchise broker interest in promoting your franchise offering.

5. Brand Protection

As a franchisor your brand and the legal protection of your trademarks are critical. You must secure and protect core intellectual property including the protectability of your trademarks with the United States Patent and Trademark Office for the federal and nationwide registration of your trademarks. If your trademarks cannot be registered or protected, this will have a material negative impact on the franchisability of your business.

6. Developing Your FDD

Your Franchise Disclosure Document (FDD) is and will always be the core legal document from which your franchise system will be created and your franchise sales activities will revolve around. Although a legal document, your FDD must be grounded in a strategic franchise development plan that creates and promotes the unique characteristic of your business and that advantages that franchisees will be afforded by your franchise system when compared to competitors.

7. Developing Your Franchise Agreement

Your franchise agreement will be a part of your FDD. They must provide you with the very best protections and must be structured and focused on strategic growth. Depending on your strategic planning goals, your franchise agreement may not be just one agreement. Your franchise system may be structured with multiple development opportunities where a franchise may sign a franchise agreement giving them the right to establish one unit or they may be offered a franchise agreement where they are granted the opportunity to establish multiple units. Your franchise agreements need to reflect your franchise system and must be designed to facilitate franchise sales.