Are you interested in starting a new franchise? This blog post will discuss 7 initial steps to franchising your business.

Step 1: Decide if franchising is right for you. Franchising is not something to take lightly. It is a significant commitment, not only in terms of time but also the financial investment required to start a franchise. Some questions to ask yourself before you franchise your business include:

  1. Are you making a good living in your business?
  2. Have you operated multiple locations?
  3. Do you have a proven system of operation?
  4. Are the profit margins large enough for the franchisee to make a good living, support employees and pay you a royalty?
  5. Do you have the time to devote to a franchise operation?
  6. Do you have the skill set to promote a franchise operation?
  7. Do you have start-up and operating capital?
  8. Will franchisees be able to get financing from affordable sources?
  9. Does your business have a unique selling proposition?
  10. Does success of the business depend on skills people have or can quickly acquire?
  11. Is the market stable enough to provide for growth over several years?
  12. 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?

If the answers to these questions are “Yes” then perhaps you are a candidate to franchise your business and advance to Step 2.

Step 2: Talk with Business Professionals About Starting Your Franchise Business

It is a great idea to talk with various professionals concerning whether to franchise your business. I recommend you speak with a franchise lawyer and your accountant first. It is important to work with a lawyer well-versed in franchise issues. Your typical business attorney may only have limited knowledge about what it takes to franchise your business. Just like you would not want a general surgeon operating on your brain, make sure you get a lawyer who specializes in franchise law to help you out. Also, it is important to get your accountant involved from the start because there are a number of issues that will come up especially if you are growing the franchise including audited financials and other tax considerations. You will probably also want to make sure you talk with your banker, insurance and marketing professionals before you begin your franchise.

Step 3: Work with the Franchise Lawyer to Develop Your Franchise Disclosure Document

So you have decided to move forward with the franchise. The next step is to work with your franchise lawyer to prepare and issue a franchise disclosure document (FDD) that complies with federal and state laws. This is an important process that involves a number of other steps, including writing the franchise agreement that franchisees will sign. The FDD requires you to provide certain information to prospective franchisees in 23 disclosure sections. It is is a detailed process that should be planned carefully in a way that connects with how you intend to run your business. You will not only be preparing documentation that will work in your exiting state, but also in other regions of the country in which you decide to franchise. Sometimes this may include selling your franchise in what are known as registration states. In registration states, regulators will closely examine your FDD offering to make sure it complies with their state laws and requirements. Often, there are special restrictions placed on new franchises in registration states. It is helpful to have a lawyer that has experience in working with franchise regulators to navigate the numerous issues that may come your way when you start selling franchises.

Step 4:  Develop a Franchise Operations Manual and the “System”

The backbone of any successful franchise company is systems. You will need to create and completely document the systems of your franchise with an operations manual that a franchisee will use to run their business successfully. You will need to create a training program that will teach a new franchisee what they need to know to become successful. You will also need to develop marketing plans that a new franchisee will use to obtain customers. And since you will now be in the “business of franchising” as opposed to your “former business”, you will also need to have systems that you can use to recruit new franchisees into your franchise company. There is a TON of work to do. You may be able to hire outside consultants to assist with all this work, but if you do, you are definitely going to pay significant dollars for that assistance.

Step 5: Take the Steps to Protect Your Intellectual Property

You will need to establish and register your trademarks and logos. It is important to register your trademarks (both the words and design of
your logo) with the United States Patent and Trademark Office (USPTO). This is not a step to take lightly. Do not have this work done on the cheap. Be sure to work with an attorney who specializes in trademark registrations. That may, or may not be, the same attorney as your franchise attorney. Not all franchise attorneys file trademark registrations although most franchise attorneys will have a trademark specialist in their law firm. The trademark is absolutely critical to the success of your franchise because this is the main intellectual property you are licensing to franchisees.

Step 6:  Establish Your Franchise Business Entity

You are rounding into the home stretch in the start up of your franchise business. You need to decide what type of entity you will use to operate your franchise business. There are a number of factors to consider before you choose your corporate entity. Many people these days tend to automatically lean toward the LLC. But the LLC is not right for everyone. One major consideration is whether you plan to take investment from outside sources. Many investors do not like LLCs and will not invest unless the entity is a C corporation because of the tax rules. Investors typically do not want to pay taxes unless monies are actually distributed. Unlike LLCs, C corporation shareholders are not taxed unless profits are distributed. Be sure to seek tax advice from your accountant when you are choosing the type of entity.

Step 7:  Create Your ‘Go To Market’ Strategy

Once all the legal documents are completed you are really just starting. Mapping out and planning your initial franchise marketing and sales strategy is critical. Where will you start your franchise? It is usually best to grow at a slower pace in the beginning to get your “franchise legs” underneath you. While everyone dreams of explosive growth, growing too fast can cause a host of problems for new franchisors who do not have experience including franchisee, supplier and business systems issues. Also, do you intend for your franchise to be a national brand? Or perhaps is it better off staying in a regional area? Will you be registering in franchise registration states? If so, you will need to make sure you are actually registered (or filed in certain other states) before you sell locations in those states. You will need to develop a business plan to effectively carry out your franchise goals.

Franchising is a long-term business strategy. It is not generally a get rich quick approach. It requires systematic processes and lots of patience in growing your business and dealing with franchisees. It can be very rewarding financially if carried out successfully. But just know, once you are up and running as a franchise, you have just begun to be in business. Let us know if we can help you to start and grow your franchise.