The Process of Franchising

Schuyler "Rocky" Reidel

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm. | The Process of Franchising

When most people think of franchising, they think of fast food chains like McDonald’s and Burger King.

But franchises come in all shapes and sizes, from car washes to wedding planners. In fact, there are more than 3,000 different types of franchises in the United States alone.

So what is franchising?

Simply put, franchising is a way for businesses to expand by selling the rights to their brand, products, and services to individuals who want to open their own franchise location.

What Is a Franchise System and What Are the Benefits for Businesses and Consumers Alike?

A specific franchise will typically use either a Product Distribution or Business Format as the structure.  These two are pretty standard, but there’s a variety of additional systems.

Having selected their desired framework, they’ll next move to implement it. 

Franchise companies ultimately deliver services or products to potential customers via franchisees.  

Benefits Available to a New Franchise

Joining the franchise industry introduces you to a proven business model. 

Other perks:

  1. Grow your franchise brand in a more cost-effective way
  2. Idea generation from franchisees for bringing in new business
  3. Lower management responsibilities compared to other systems

Since your brain is probably imagining the awesome possibilities, we’ll next outline the steps.

How Do You Go About Setting Up a Franchise System?

Okay, you’re excited about learning more.  Aiming to keep the enthusiasm going, allow us to lay out the general stages involved.

  • The franchising process begins with the development of a comprehensive business plan 

This document will describe the company’s goals and objectives, as well as its marketing and financial strategies. 

  • Once the business model is outlined, the next step is to find potential franchisees 

This can be done through online directories, franchising trade shows, or by working with a franchise broker.

Additional Step To Follow

There’s no substitute for looking a potential business partner in the eye before deciding to work together.

  • After potential franchisees have been identified, the next step is to conduct face-to-face meetings

During these meetings, the franchisor will provide an overview of the franchise opportunity and answer any questions that the prospective franchisee may have.

Moving along, let’s help you increase the likelihood of success in business ownership.

The Key Components of a Successful Franchise System

There’s obviously no way to guarantee immediate and long-lasting success in any business.  If there was, franchises would be selling left and right.

But having worked with profitable ones, we’ve observed some key traits.  If you’re ready for your franchised business to learn from those who went before you, keep reading.

What the Best Franchise Brands Do

Buying a franchise should excite the purchaser.  And feel like the best investment they’ve ever made in their career.

Your facilitating this feeling will make parting with the franchise fee and future royalty fees easier on them.

On discovery day at your corporate office mention the following:

  • Assistance they can expect from existing franchisees
  • How the franchise agreement favors them as well

They may have a preconceived belief that franchise agreements are constraining and hard to understand.  Relieve their anxiety by offering clarity on yours.

Understanding what a successful business looks like is important.  But what are other factors to pay attention to?

Key Considerations for Franchisors in the Process

Owning a franchise may emit visions of a very exciting future, and it should.

Before the feeling is realized however, let’s review some worthwhile tips.  That way you’ll be able to work methodically towards your vision!

Many franchisors assume the operation will thrive once their ingenuity is simply applied to their ideas.  But you’re just not like any other franchise owner are you? 

Of course not!

Creating a solid business plan will not only draw in prospective franchisees, it’ll help you achieve your ultimate goal.  

Two most common goals at the end of the road:

  1. Selling your business when you retire
  2. Handing it off to a family member

What are the necessary sections to include in your business plan?

  • Start up costs
  • Management team/structure
  • Those you’ll sell franchises to
  • Any funding sources

Taking a page out of marketing, you don’t want to blindly sell part of your business to everyone with the ability to purchase.  In order to be more selective, create an ideal franchisee profile and use it on sales calls or for in-person meetings.

Other Particulars for Franchise Ownership

Because you desire to be a thought leader among other franchise owners, you probably should invest in coaching at some point.

Most franchisors write this task off as something they don’t really have time for.  After all, running a business is a “bit” time-consuming, right?

Benefits of a mentor or coach:

  • Avoid common mistakes
  • Become profitable earlier than competitors
  • Sounding board for new ideas
  • Grow your leadership skills

A final tip is to make sure you’re plugged into a franchise network.  This may include conferences, periodic video calls, mastermind groups, or various networking events.

It’s time to talk about every entrepreneur’s favorite topic, growth.

How To Manage and Grow a Successful Franchise System

Financial success is more probable with clear business goals. But even the most well thought-out ideas need outside assistance sometimes.

At least initially, understand that you’re a small business owner.  That’s okay if you don’t want to stay as one indefinitely, but congratulations on this accomplishment either way!

As mentioned earlier, your business model should include possible funding sources.  One involves the Small Business Administration (SBA). 

Franchise development becomes more realistic should you apply for and receive a small business loan from them.  Combining this capital with effective marketing strategies will supercharge your efforts.

Join the Ranks of Popular Franchises

There’s many more tips and strategies which we didn’t have time to cover here.  Just know that franchise opportunities abound in the U.S.

In this knowledge, remember to always stay optimistic as you learn what being a franchisor truly looks like.

As you can see, franchising is a complex process with many different steps.  But for those who are interested in owning their own business, it can be a great way to get started.

Moving right along, next we’ll look at ways to cover yourself from a legal standpoint.

The Importance of Due Diligence in Creating a Franchise Business

Post discovery day, you may have won over a potential franchisee.  Now what?

If both parties are interested in moving forward, the next step is to sign a Franchise Disclosure Document (FDD).

The FDD is a legal document that outlines all of the important details of the franchising agreement.

It includes:

  • Franchisor’s obligations 
  • Franchisee’s rights and responsibilities
  • Fees associated with the franchise

After the document is signed, the franchisee will need to obtain financing for their franchise location. 

Once all of the paperwork is complete and the financing is in place, the franchisee can finally open their doors for business!

When To Use Franchise Attorneys

The ideal time to partner with a franchise attorney is after you’ve created a business plan.

Besides preparing your FDD, they can also assist in the creation of additional legal documents.  One example is your franchise operations manual.

As questions arise around a specific federal law, they are also great resources for navigating the “legalese.”

After all, you’re a big picture person and don’t want to get bogged down in the details!  

This expert will support you as you move towards becoming a legal entity.  And one with all the rights guaranteed by this nation’s laws.

The Importance of Due Diligence in Creating a Franchise Business

As experts in franchise law, we can help you handle the legal aspects of any franchise issues. We help franchisors evaluate a potential opportunity so they have a full understanding and assurance of the franchise system they build.

By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.  

From reviewing a franchise agreement to supporting your small business in other ways, we’re your partner for the long haul.

Call Reidel Law Firm today at (832) 510-3292 or fill out our contact form to see how we can help your business franchise.