How to Franchise Your Business: The Ultimate Guide

If you’ve built a successful business and feel there's a wider demand for your products or services, you might want to think about expanding nationally or even worldwide. Consider franchising your business to experience quick growth.

When franchising your business, you remove the pressure of operating additional locations yourself and provide entrepreneurs who have the passion for your products or services to run their own establishment while using your brand name.

When considering franchising your current business, it's important to realize that, although it's an avenue to exponential growth, it can also be a very difficult and challenging process.

The following are the steps to take when franchising a business:

1. Do your homework

You’ll need to do a considerable amount of research to determine whether your current business is scalable and whether there's enough demand to turn it into a successful franchise. Go to sites such as www.franchise.org to find out more about the franchising world.

During the research, keep in mind that your franchise has to attract both potential franchisees and end consumers. Your system must be easily scalable and easy to replicate. The more thorough your research into the franchising world, the better prepared you will be to start your franchise business.

2. Understand your role

When you become a franchisor, the role is very different from that of a business owner. As an owner, you would focus primarily on how your business performs, hiring and managing staff and ensuring that you turn a profit. As a franchisor, your role mainly entails growing the franchise, training and providing support to your franchisees.

A mental shift must be made from business owner to a franchisor if you want to start a successful franchise.

3. Work out franchise fees

After your research, you need to start considering how much you will charge for your franchise. Your fees have to be competitive compared to similar franchises.

Think about the one-time initial payment that can range from $20,000 if you’re planning to operate a low-cost franchise, all the way up to $500,000 as in the case of McDonald's. You also have to think about the royalties you’re going to collect from your franchisees, which is normally directly related to a percentage of their gross revenues.

4. Fulfill your legal requirements

You’ll only be allowed to sell a franchise legally in the United States if you have completed and registered a franchise disclosure document (FDD) with the Federal Trade Commission.

Within the FDD, you’ll need to provide information such as:

  • Audited financial statements
  • Operating manual for franchisees
  • Description of your management structure
  • Your business experience

The FDD document needs to be updated on an annual basis in accordance with the requirements of the Federal Trade Commission. You also need to familiarize yourself with relevant laws at both the federal and state level to ensure that you're always compliant.

It’s vital to be legally sound before you start franchising your business. This will save you money and headaches in the long run. Additionally, you need to draw up legal agreements between you and the franchisees to ensure that the franchisees’ rights and responsibilities are spelled out for every area of the business. This will put you in a good position down the road if there are any incidents or claims.

5. Seek professional help

As seeking legal advice is one of the most important factors when franchising your business, you should consult a qualified franchise attorney. This person should have a track record of helping other business owners franchise their businesses. He or she will guide you in filling in and updating your FDD as well as any legal requirements needed for day-to-day operations.

You might also need to hire a franchise consultant. Franchise consultants go beyond the legal basics and will give you practical tips on what it takes to operate a franchise on a day-to-day level. Ideally, this consultant would have already franchised their business, so you can learn practical lessons from the systems already implemented.

6. Choose a franchise model

When working with a franchise attorney, one of the decisions to make is the type of model you want to use.

The following questions need to be considered to make the best decision:

  • How much are the franchise fees and the percentage of royalties?
  • How long will the franchise term be?
  • What type of training program will you provide?
  • Which geographical area are you going to offer your franchisees and how big is the actual territory you want to award to each one?
  • Are franchisees expected to buy products or equipment from your company?
  • How much business experience does a franchisee need?
  • What should the net worth of a franchisee be?
  • How will you market your franchises?
  • Do you want an owner/operator for every franchise or would you like a master franchisee that can operate different locations?

7. Create a system to vet franchisees

Setting up a system for franchisees is another important aspect of starting a franchise business.

When potential franchisees show interest, have information ready about:

  • The standards you expect.
  • The experience needed to operate your franchise.
  • Liquid assets requirements.

Without a system for potential franchisees, you might get interest, but these candidates might not go through with buying the franchise, or worse, they may buy the franchise and close because they didn’t have clear expectations. This could have a damaging effect on your bottom line and on your brand.

Your potential franchisees will already be clued up on things to consider when buying a franchise. So, to provide the best support for franchisees, start thinking about the procedures, processes and systems that should be in place. This will enable a smooth transition into your franchise. Then, analyze and review your current processes and systems to see if they can be duplicated or, better still, improved to help your franchisees succeed.

8. Create a marketing strategy

You will be responsible for marketing your franchise to potential franchisees as well as marketing your product to your end consumers. To grow your business, you must come up with a solid marketing strategy to address these different needs. An effective marketing strategy will help you promote both your franchise and your goods or services as you add more locations.

9. Determine the critical staff required

Ensure that you have enough staff to support your franchisees. The integral staff could be different for different franchises, but consider hiring a trainer to coach franchisees in how things need to be done. You can also include someone to answer any questions that come up. The cost of your staff needs to be included in your recruiting budget.

10. Implement a system for hiring staff

You need to support your franchisees in hiring the right people. Use a tool, like Fountain, to make hiring staff simple and easy. We're experienced in providing quality staff to franchises.

We’ve worked with recruitment agencies, like The Turas Group, that’s responsible for hiring for national and well-known franchises like Chick-Fil-A. The company receives a large amount applications and found it hard to communicate with all the applicants in a timely manner. They used Fountain’s automation capabilities to improve their hiring metrics.

If you decide to use a local agency, make sure they're using modern hiring software, like Fountain, to get a better return on your investment and get the best workers fast.

Read the Turas Group case study to find out how they were able to reduce their time to hire by more than 50%.

11. Sell your franchises

If you’ve done your homework and have the necessary capital, it's time to sell franchises. Hopefully, you will have trained salespeople for this. These salespeople should know your business like the back of their hands and also have an interesting story to entice prospects to find out why your franchise is worth their investment.

Although it might be tempting to allocate your franchise to the first candidates who come along, even friends and family, this isn’t the best scenario. It's better to wait for potential franchisees with the best qualifications to increase the chance of the franchise surviving.

12. Provide support

If you’ve gone through all the steps above and have recruited your first franchisee, ensure that they’re fully supported and do not feel overwhelmed worrying that their franchise (and, by extension, your franchise network) succeeds. Your training program needs to be thorough, adaptable and flexible to meet the needs of new franchisees.

Furthermore, include supervisory functions to ensure that all franchisees are running their businesses according to the standards you’ve set. It's important for every single consumer to have the same experience wherever they go. For their initial training, your franchisees may be required to attend a physical facility. You should also invest in online training to keep your franchisees up to date.

You’re advised to be on hands to offer guidance when your new franchisees start, even if you’ve provided the best training. As a business owner, you know that unplanned things will come up, such as IT issues. It's important to show that you’re concerned about your franchisees' needs in the first days and months of the franchise to build a positive rapport with them.

Now that you know how to franchise your business, here are some mistakes to avoid:

Misjudging the cost

Although successful franchisees can make a lot of money, they also need significant expenditure for legal fees. The amount starts to add up. You need to pay professionals, like accountants, so that everything is above board. Given that there's little cash flow for most new franchisors, make sure you have enough in savings to maintain your current lifestyle.

The cost of franchising your business can be significant, especially in the first year since you are creating a franchise system and incurring the cost of finding, marketing and training new franchisees. Even if you’re successful in your recruiting, the outlay will normally be more than the royalty revenues you receive.

When first starting a franchising business, you also need enough capital to fund operations such as administrative, accounting and marketing. It will normally take around 20 franchise units to generate enough royalties to support your franchise structure. As this could take a few years, you will need enough capital to support yourself during this time.

Refusing to plan

Every aspect of franchising your business needs to be planned meticulously. You need to create a detailed operations manual for the business that runs through every single step and process. This planning stage should not be rushed and it can’t be done on the cheap otherwise you may end up paying a heavy price later on.

Rushing to franchise your business

You must have a provable and scalable business that has been around for a while before considering franchising it. If your business is new and, even if it's popular, this may not be a sign that you should franchise. It’s suggested to wait at least three years before you start thinking about franchising your business. This means that you would have gone through different ebbs and flows and various fluctuations in the market and have seen how your business responds.

Conclusion  

There's a lot to consider when thinking about franchising your business. One area that is integral to the growth of any franchise is hiring the right staff quickly and efficiently.

Fountain has been built with recruiting hourly workers in mind, so you can use our modern hiring software to ensure that your franchisees have access to the right staff without compromising on quality.

You can use Fountain in-house or use a recruiting agency. If you do go through a recruiting agency, choose one that uses software, like Fountain, to get the best return on your investment.

If you’re thinking about franchising your business, get ahead of the curve by considering using the best modern hiring software. Start a free trial of Fountain (no credit card required) for your existing business to experience seamless and efficient sourcing, recruiting and onboarding of candidates.

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