From time to time, people ask me how they might franchise the business they own. Generally speaking, I help them understand what's really involved in the process and this substantive undertaking; it's very complicated, costly and quite a considerable commitment. Often, people underestimate what's involved, which can be dangerous. I like to give people an accurate, honest and complete perspective on the situation so they can make a well-informed decision. If you've got a great business that you believe would make an excellent franchise model, here are a few ideas for you to know and consider for becoming a franchisor.
Step 1:
The Federal Trade Commission regulates franchising, and several states have state-level franchising regulations. What does this mean? It means you need lawyers and accountants because disclosure documents and audited financial statements are required and must be updated and filed annually. That costs money every year. The FDD (Franchise Disclosure Document) must be written, filed and updated annually with the Federal Trade Commission and in any "registration States" you'd like to offer franchises. Typically, it costs between $20,000 and $50,000 to get yourself properly organized and documented before you can legally sell a franchise unit, then around $10,000 per year to stay updated. Once you do so, there's no guarantee that you'll successfully sell any franchise units. It's essential to recognize that becoming a franchisor is a significant investment and a large commitment, and most people are unaware of that from the very beginning, so it is important to understand.
Expand Your Business by Franchising
Step 2:
A franchise system must be proven and well-developed before it's ready for prime time. The general advice I give on this is to begin with careful consideration of your first successful unit. Congratulations, that's a great start! From there, go 100 miles away and build another unit of the same brand and business model to prove that the second unit was a successful operation, and now that's a coincidence. From here, go 100 miles in another direction, build a third unit and ensure that's another successful operation; now you have a pattern. The first successful business is an accident; the second unit success is a coincidence; the third unit success is a pattern.
Now, you've got the basis to consider franchising that model. With the dedication, work and investment of opening these one, two and three units, you will have developed the understanding, experience and systems that most franchisees would expect you to have. Therefore, they have expectations of something of value when they buy your franchise. By doing all this, you'll develop the manuals, the systems, the training, the formatting of the financial information, the marketing information, the operational information, the vendor and supplier relationships and more. These are all things that a franchise system needs to have in order to be successful. Franchising a system from one proven unit is dangerous and risky. The appropriate level of commitment, development and experience that comes with first building multiple units and proving that model over and over makes you better prepared and much more likely to be a successful franchisor.
Step 3:
The next step to becoming a franchisor is to take your time and get some help. There are several consulting firms out there that can develop your brand and create the paperwork, required documents, filings and all the related necessary and appropriate materials to put you in a position to be a successful franchisor. I don't recommend doing this on your own. These consulting firms offer great service and value. However, they are NOT all the same. I would investigate them by comparing what they offer and their experience, consider the options carefully, and ask for and verify references. It can be crucial to make this investment to get the appropriate help to be fully prepared and have clear expectations of the time, money, resources and effort required to start up and launch a franchise system. It's not an easy endeavor; it's a lot of work and risk, which can be tremendously rewarding if you do it well and are lucky.
3 Tips for Growing Your Franchise
I'm a big fan of franchising; I love to see people succeed in franchising their businesses. If you're considering this business opportunity and want to discuss your situation, let's connect and I'll share more about becoming a successful franchisor.
John Francis of Johnny Franchise is an enthusiastic, engaging, and entertaining public speaker, advisor and franchise coach; he speaks from experience and the heart. He is the creator of the successful Franchise Lifecycle Program that will take your franchise to the next level. Franchising is in his blood, and his parents were true pioneers in the industry, turning their family haircutting business into a 1,000-salon franchise empire. He has been a franchisee and a franchisor and has a deep understanding of the issues both face. Connect with John, and you and your franchisees will learn how to look at your business in new, positive, and profitable ways.
