How to Franchise My Business, in 10 Steps
By Joshua Logan, Esq.
If you have good business processes you could have people pay you to teach them the processes.
If you have a good product, you could set up a licensing and distribution system. If you have both, and the passion to grow the business quicker than you could on your own, then you might want to franchise the business. Here are 10 essential steps to help you build your dream franchise system:
Establish & Register Your Trademarks. Recognizable trademarks have value. Also, whether you've already created some brand recognition or simply want to avoid having to change your name and logo later, you may gain some protection by applying for and having your registrations accepted, with the U.S. Patent & Trademark Office- not to mention add value to the "franchiseability" of your business.
Develop or Refine Your Operations Manual. Any good business is going to have good business processes. If you haven't developed a written manual containing those processes, now is the time. Once you start putting the processes to paper you'll be surprised at how many you actually employ (or perhaps how many you need to develop). Think about how the store or office should be opened and how the phones are answered, to the closing along with accountability reports and accounting procedures, and everything in between. If you have an operations manual already, now is the time to review it and make sure it is readable and complete so that an outsider (your future franchisees) can read, understand and implement the procedures.
Training Processes. You’ll have to map out the training process, consider how you are going to teach the repeatable business processes, how long each training component will take, the best location(s), how much it is going to cost you as the franchisor as well as what it will cost for the new franchisee (also, these franchise costs have to be included in the Franchise Disclosure Document anyway- which leads to the next point discussed).
Have a FDD Prepared & (maybe) Registered. The Franchise Disclosure Document, or “FDD,” explains who is involved in the franchise system and what their business experiences are, the size of the franchise, how the franchisor gets revenue, related litigation, expected fees and costs of franchisees, and so much more. The FDD contents are dictated by federal code and required, to be given to prospective franchisees weeks before offering franchisees a franchise. The FDD’s predecessor, the Uniform Franchise Offering Circular, or “UFOC,” is no longer required by federal law, but one is still required in some states. It is important to know the franchise laws of each state in which franchisees reside, are based out of, or intend to establish a franchised business, in order to determine what documents are required, who the documents must be provided to, and whether or not they need to be filed with the state (and when).
Have a Franchise Agreement Model Prepared. The franchise agreement defines the roles, obligations and benefits entitled to each of you, the franchisor, and the franchisee. A model of the Franchise Agreement must be attached to the FDD. You should always have a lawyer versed in franchise law work with you on preparing both the FDD and the franchise agreement.
Define Roles & Processes. A franchise is a completely separate and different business than the primary business you are franchising. Everything about it is unique, from the marketing, to the interviewing and vetting processes of franchisees, to the training of these future business owners copying your models, to the record-keeping and accounting of the franchise. It is imperative that you yourself create your own operations manuals and decide who will be operating which parts of the franchising process.
Marketing to Potential Franchisees. If you are just starting a franchise system, the best place to first start looking is to your loyal customers who have some idea “what your business is about.” Then, you move on to making press releases, advertising in entrepreneurial periodicals and websites, as well as possibly attending trade shows.
Interviewing & Vetting. The process generally starts with an inquiry from an interested party, some questions back and forth, including possibly a “discovery day” where you get an in-depth look at the franchise and vice-versa, followed by some interviews, and due diligence on both sides.
Offer the Franchise. Whoo! After all that preparation and interviewing it’s time to offer a franchise. First, you are required to give a copy of the FDD to the potential franchisee and allow for a “cooling off” period, and depending on the applicable state laws, other obligations. Ultimately, you come to an agreement with the franchisee and have all proper documents signed.
Train & Nurture. Now you truly become a franchisor. In many instances the franchisor will help with all the set-up of a new business, perhaps offer assistance with location, build-out and financing, then finally the training. Training could be at HQ, on location, at another franchisee location or a combination of all of these. As time goes on your training and guidance will ideally adapt along with your franchise.
Franchises are chock full of nuances particular to the franchising relationship, and legal peculiarities. Make sure you work with a licensed professional help guide you to success.
Joshua Logan of Achieve Legal is a Florida-licensed Franchise and M&A Attorney, serving clients throughout Florida from Orlando, and nationwide through association with local counsel. You can call him at (407) 502-2580, or he can be reached by e-mail at JLogan@AchieveLegal.com