Lately we've heard from a number of business owners that are interested in franchising their businesses. It's always exciting to talk with entrepreneurs who are enthusiastic about their business models. Franchising is an attractive option for many.
But there are lots of things to consider before you move down the path of franchising your business. First, you'll need to understand the legal requirements to franchising a business. You'll need a federal registered trademark and also comply with the Federal Trade Commission (FTC) disclosure requirements. As a part of your disclosure requirements, you'll need to prepare a franchise disclosure document (FDD) which contains 23 specific iftems such as the background about the franchise business and its principals,franchise and other fees, whether you've been involved in litigation, estimated costs, an explanation for how territories are determined, the process for purchasing goods and services by franchisees and several other aspects. THe FDD also contains the franchise ageement and any other contracts the franchisee must sign.
Another thing to keep in mind is that you'll need audited financial statements, and in certain states, you'll need to register your franchise offering and renew it each year with the appropriate state agency. All of this takes time and costs a substantial sum of money.
There are many business considerations as well. Some questions a potential franchisor should ask themselves include, but are not limited to, the following:
- Are you making a good living in your business?
- Have you operated multiple locations?
- Do you have a proven system of operation?
- Are the profit margins large enough for the franchisee to make a good living, support employees and pay you a royalty?
- Do you have the time to devote to a franchise operation?
- Do you have the skill set to promote a franchise operation?
- )Do you have start-up and operating capital?
- Will franchisees be able to get financing from afforable sources?
- Does your business have a unique selling proposition?
- )Does success of the business depend on skills people have or can quickly acquire?
- Is the market stable enough to provide for growth over several years?
- Are you able to support franchisees once you get them in business and do you have something to offer them beyond getting them in business?
- Do you have a recognized brand name?
Franchising is not something to take lightly. It's a major investment and dealing with franchisees, under the best of circumstances, can often be demanding. Do your homework, plan and conduct an honest assessment of your business before you take the plunge.