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Things To think through before deciding to franchise (Part Two)

The Franchise model of expanding brands into multiple location businesses quickly and efficiently has been around a long time, but that doesn’t mean that starting a franchise is an easy process. Here is Part 2 of Things to Think Through as you are considering whether your Brand has what it takes to become a successful franchise. If you missed Part 1, you can read it here.

To help you formulate your plans for your new franchise system, you should develop a business plan. This is often over looked by many franchisors, but should be a requirement.

You’ll need a specific marketing plan for how to sell your concept to future franchisees. There are many marketing techniques and tools available for selling franchises. Do your homework and find out what is right for you based on your budget, and the target audience of prospective franchisees. Franchise advertising is regulated in several states, so be cautious and research local and state media regulations.

The foremost purpose of franchising is to make money for the franchisors and franchisees also expect to make a reasonable return on their investment. It’s essential for the franchisor to ensure the concept produces profits sufficient to make money for your franchisees, after paying royalties and other fees.

Franchise agreements need system standards outlined in a comprehensive manual. Manuals change over time as system standards are added, dropped, or changed. Franchise agreements should allow you to modify the manual anytime the franchisee needs to adjust operations.

Your training program should be about best practices on set up and running your franchise concept, and of course, how to represent the brand consistently. Trainings can be brief or extensive. The complexity of the franchise will affect the duration of training. Training programs can involve both off-site and on-the-job training. Key elements of a good training consists of meeting key franchisor team members, reviewing principal parts of the operations manual, reviewing important legal documents, learning to use software or point-of-purchase equipment, and learning day-to-day operation of the business.

As a franchisee, you’ll need initial support and additional on-going support. Capable management will provide this support in important categories such as location selection, lease negotiating, staff recruiting and training, marketing, and customer service.

Start-up money varies wildly and depends on your system, how much of the initial work has already been done and additional work you will do yourself. Experts suggest that you will need from $50,000 to $250,000 to get started, some franchisors have started with much less than $50,000. If your plan, dedication, and marketing efforts are successful, you could recover your start-up capital rapidly.

It’s a smart move to form a new legal entity as the franchisor; however, not a requirement. Setting up a new entity will protect assets from liability that may occur within the franchise system, and you’ll reduce the expense of audited financial statements. The most popular entity choice for franchisors is limited liability companies and corporations. Legally selling franchises requires a Uniform Franchise Offering Circular (UFOC) and you will need to register the franchise in certain states. The UFOC must also include financial statements prepared by an independent certified public accountant.

So do you have all your ducks in a row? I found this fun post on the StoryDoors blog that says a lot about the challenges. Enjoy and thanks to John Michael Cook for the post!

Are they all upright?

Are they all facing the same direction?

Are they facing the right direction?

Are they one in front of another or  side by side ?

Are they all following the same leader?

Are they all following the right leader?

Are they all in the right order?

Are they all in the water?

Are they all in the same pond?

Are they in the right pond?

Are they all your ducks?

Are they behaving as good ducks should?

Are they all safe from predators?

Are they able to grow to leave the pond?

What is the purpose of having the ducks?

Should you be tending swans instead?