Franchising sounds like a great way to grow your business. After all, what could be better than expanding your brand by letting other people use it? But how exactly do you go about franchising a business?
This article will give you a step-by-step guide on how to franchise your business. But before we get started, let’s answer a few common questions about franchising.
What Is A Franchise?
A franchise is a type of license that allows someone to use your business name, logo, and model to sell your product or service in a specific territory. In return for this right, the franchisee pays you an initial fee and ongoing royalties.
Think of companies like McDonald’s, Baskin-Robbins, or 7-Eleven. These companies are all franchisors, and each location is a franchisee with its own management and is “renting” the brand name from the franchisor (the owner) for a fee.
Why Should You Consider Franchising Your Business?
Now that you know what a franchise is, you might be wondering why you should bother with franchising your business in the first place.
Franchising is a successful business strategy allowing you to capitalize on an existing clientele while pursuing your entrepreneurial dreams.
When you launch a franchise (or multiple franchises), you’re essentially replicating your business model in different locations.
This can help you support yourself and your family while also hiring locals and boosting the economy.
How To Franchise A Business
Of course, like any business venture, franchising comes with its own set of risks and rewards. But if you’re ready to take the plunge, here’s a step-by-step guide on how to franchise your business.
1. Make Sure Your Business Is Ready to Franchise
The first and most crucial step is to make sure that your business is ready to franchise.
Not every business is a good candidate for franchising, so it’s important to research and ensure that franchising is the right path for you.
Here are a few things you should ask yourself before starting the franchising process to make sure your business is prepared:
- Is your current business profitable and in good shape?
- Can you afford to franchise and grow your business, or will it drain your resources?
- Do you have systems and processes in place that others can replicate?
- Are you confident in your ability to mentor and support franchisees?
- Do you have a solid business model with a proven track record?
You don’t have to say “yes” to every question. However, you should try to be honest in order to draw attention to any flaws that might need to be addressed before you start franchising
2. Conduct Market Research
The fact that a franchise has built-in brand recognition does not mean that there is a market for it in every location.
That’s why it’s important to do your homework and conduct market research before you start looking for franchisees.
Make sure there is a demand for your business by conducting some basic market research.
Consider the household features, income brackets, age, family status, and employment statistics in the areas you’re targeting.
For example, your high-end hotel franchise will undoubtedly fail if you try to open it in a region with a low median income and little tourism.
For a more accurate picture, you could compile a list of the leading competitors in your chosen markets and compare their prices, services, and target demographics to your own.
3. Estimate The Costs
While most of the upfront costs will fall on the shoulders of your franchisees, there are still some start-up fees that you’ll need to account for as the franchisor.
You should also clearly understand what ongoing costs will look like, such as marketing, support, and training expenses.
Some of these costs can be passed on to the franchisees in the form of royalties or marketing fees, but you’ll need to ensure that your pricing is competitive and that your franchisees can afford to pay these costs.
4. Protect The Intellectual Property Of Your Business
Giving franchisees access to a wide range of intellectual property is a key component of franchising your business.
This promotes the expansion of your company and allows them to advertise the franchise according to your strict standards.
However, if your intellectual property isn’t properly protected, you could run into many issues down the road.
For example, a franchisee could produce subpar products or services that damage your reputation, or a former employee could start a competing business using your protected processes.
You’ll need to trademark key aspects of your business, such as the logo, name, slogan, and any proprietary products or processes.
This will give you legal ownership and prevent other businesses from using these elements without your permission.
5. Make A Clear Franchise Agreement
One of the most important documents you’ll need to create when franchising your business is the franchise agreement.
This contract will outline the franchise’s operational expectations for both you and your franchisee.
Franchisees are independent contractors, not employees, and must agree to the terms of this agreement in order to work with you.
The Franchise Disclosure Document (FDD) that you provide them will serve as a pre-reading for the agreement and should contain all the information they need to make an informed decision.
The franchise agreement doesn’t have to follow a specific format, but the best ones are transparent and comprehensive.
Yours could include:
- Franchising costs (upfront and recurring)
- Conditions for the agreement’s extension
- Conditions for termination and post-termination provisions
- Regulations for giving the franchise to a third party
- Date of the franchise’s debut
- Minimum sales thresholds
- Non-compete terms
- Methods of resolving disputes
Working with a franchise lawyer can help you create a franchise agreement that is thorough and clear, removing any confusion about the expectations and requirements of both parties.
6. Find Potential Franchisees And Start Selling
One of the advantages of franchising your business is that it allows you to expand quickly and efficiently by selling franchises to motivated individuals interested in running their own businesses.
The best way to find these individuals is to attend relevant trade shows and events, search online job boards or hold discovery days at your existing locations.
You could also hire a franchise broker to help you identify and screen potential candidates.
When you’ve found a few individuals who seem like a good fit, invite them to an initial meeting to learn more about their background, business goals, and financing options.
If everything goes well, you can provide them with a copy of your FDD and begin working on the franchise agreement.
7. Grow And Support Your Franchisees
As a franchisor, one of your key responsibilities is to provide support to your franchisees as they get their businesses up and running.
This might include offering training on how to use your systems, providing marketing materials, or offering advice and guidance when needed.
You should also have a plan in place for handling disagreements or disputes that may arise between franchisees or between franchisees and customers.
By having a clear process for dealing with these issues, you can help prevent them from escalating and damaging your brand.
By following these simple steps, you can franchise your business and start selling franchises to qualified individuals eager to get started.
Just make sure you take the time to properly plan and prepare for this process to avoid any potential problems down the road.
Amit Gupta is the founder of DrFranchises – a digital marketing agency that helps brands rank #1 on Google Maps through local SEO strategies. Amit has over 11 years of experience in digital marketing, SEO, email marketing, and social media marketing. He’s also the owner of multiple franchises and has helped countless brands achieve success online. When he’s not working, Amit can be found playing with his dog.