How To Start My Own Franchise Business – Franchising offers business growth, but preparation is key. Here are seven steps a business should take before expanding.
After the initial stages of starting a business, many entrepreneurs begin to think about how to grow it. Franchising is one of the ways to develop a successful business. Read on to find out:
How To Start My Own Franchise Business
Franchising is a type of arrangement that involves replicating a successful business model across multiple locations. As a business owner and franchisor, you must enter into a franchise agreement to begin the process and move toward opening a new franchise.
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This agreement allows the franchisee to obtain limited rights to their intellectual property, supply chains, training systems and more in order to open and operate a new location for their business.
Franchising and licensing are two different ways to share information about your brand for a fee. The differences between franchises and licenses focus on control and operation:
The type of franchise that is right for you depends on the size and complexity of your business and the industry in which you operate.
Including the preparation, the franchise usually takes three to four months. The process can move faster depending on the complexity of your business model.
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Franchise cost varies by industry, state of residence, and more. Sometimes it can cost less than $20,000, but some deductibles add up to around $100,000 or more.
The Federal Trade Commission (FTC) regulates franchising at the federal level, but each state has its own rules and requirements for franchising. To make sure you don’t overlook any state-specific requirements, it’s best to speak with a franchise attorney who can help you prepare the documents in your specific state.
Once you’ve decided to franchise your small business, you’ll need to prepare to work with new independent contractors to run your individual franchises.
Before you begin your franchise journey, you should ask yourself a few questions to ensure your business is franchise ready.
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You don’t have to answer yes to every question, but you should try to give honest answers to highlight any weaknesses that may be in your blind spots.
According to Blair Nicol, CFE, vice president and director of franchise consultancy FranNet, it’s best to start with a starting location that already has an established presence. Small businessmen, according to him, “had to duplicate this concept several times. So they have a replicable model that has been shown to work anywhere.”
Fundamental to franchising your business is giving franchisees access to a large amount of intellectual property. This allows them to brand your franchise according to your recommendations and also helps your business grow. But this can put you at risk if your intellectual property is not properly protected.
Before you dive into the franchising process, make sure you protect the intellectual property that makes your business unique and recognizable.
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Under the franchise rules, you can sell a franchise to a prospective franchisee only after you have granted them an FDD that complies with FTC rules and regulations.
The FDD is like your franchise letter: it introduces the key players, defines the terms of operation, includes financial statements, and addresses the obligations of your franchise agreement. In fact, it must contain 23 specific chapters according to the rules of the franchise:
These requirements are important to ensure that your FDD is a living document that informs franchisees of the most up-to-date information.
Tip: Give prospective franchisees as much time as possible to review your FDD. It is in your best interest to only partner with franchisees who are fully committed to your investment; your success is your success.
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A franchise agreement is a contract that binds you and your franchisee to certain expectations that will dictate how the franchise operates. The franchisee is an independent contractor, not an employee, and must sign this agreement to qualify for the franchise. Once signed, it will remain in the FDD that you create for each franchisee.
A franchise agreement does not have to follow a specific format, but the best agreements are clear and complete. Yours may include:
Not all of the above conditions will apply to all business models. Working with a franchise attorney can help you draft a complete and concise franchise agreement, taking the guesswork out of starting a new franchise.
This manual is not necessarily a legal document signed by the franchisee, but is included in the franchise agreement. Therefore, the franchisee is responsible for compliance with all the attached obligations. However, franchisees will not operate exactly like you. Be prepared to give up some control over your business concept and how it is executed, as long as all the requirements are met.
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Once your FDD is complete, it should be stored securely so that you can access it and update it as needed. Your FDD is a required document, but whether you need to file an FDD with the government depends on the state you live in.
States of incorporation, states of filing, and states without incorporation all have their own requirements for franchisors. For example, states that do not register require you to obtain a registered trademark on your disclosure documents.
No matter what state you live in, consulting an expert can help you determine exactly what to do with your FDD.
Franchising your business is a great opportunity to sell your successful idea to others. The business goals you set for your franchise need to be realistic, and you’ll need a realistic strategy to achieve them.
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Your strategy should be unique to your business, your community, and your growth goals. Some good ideas to consider when developing your strategy include:
A complete and honest FDD is a useful explanatory tool when trying to sell your franchise to a new franchisee. It can help answer common questions or serve as a resource to advertise benefits you offer, such as a special employee training program.
Being a business owner is a rewarding job and often requires difficult decisions. Weigh the pros and cons of franchising for your business to decide if franchising is right for you.
A franchise is an important asset for a business owner. It is a concept that promotes growth that can be beneficial to you if it is possible to scale your business. The advantages of the franchise include:
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The scalability of your franchise ultimately determines the diversity of passive income you generate. Even so, franchises offer unique opportunities for growth.
Franchising has many advantages, but there are several disadvantages to running this type of business model. The disadvantages of franchising include:
When money is tight, the long game of the franchise can be difficult. Their high startup costs and potential litigation require extensive financial planning.
You may need to register your franchise based on the state in which you live. Some states require registration and payment of a deductible, while others require you to file a franchise disclosure document with the state or simply obtain a trademark for it.
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Licensing is not an alternative to franchising. Licensing rights cover intellectual property, such as a brand or logo, while franchises grant rights to entire business models, products, and services.
Franchising is an exciting way to grow your business if you lay the right foundation beforehand. It offers new markets, a larger customer pool, and higher profits, but it also requires a lot of money and time.
This part of the site is for informational purposes only. The content does not constitute legal advice. Statements and opinions are those of the author, not , and have not been evaluated for accuracy, completeness, or changes in law. A franchise is a type of license that gives the franchisee access to the franchisor’s own business processes and knowledge, and trademarks, allowing them to sell a product or service under the franchisor’s company name. In exchange for purchasing a franchise, the franchisee typically pays the franchisor an upfront fee and annual license fees.
If a company wants to increase its market share or geographic coverage at a low cost, it can franchise its product and brand. A franchise is a joint venture between a franchisor and a franchisee. A franchisor is a startup business. Sell the right to use your name and idea. The franchisee purchases the right to sell the franchisor’s goods or services under the franchisor’s existing business model and trademark.
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Franchising is a popular way for entrepreneurs to start a business, especially if they are entering a highly competitive industry like fast food. One of the great advantages of buying a franchise is that you have access to a well-known company brand. You will not have to spend resources to get your name and product to customers.
The franchise business model has a storied history in the United States. The concept originated in the mid-19th century, when two companies, the McCormick Harvesting Machine Company and the I.M. Singer Company: Developed organizational, marketing, and distribution systems recognized as the forerunners of franchising. These new business structures developed in response to large-scale production and allowed McCormick and Singer to sell their reapers and sewing machines to an expanding domestic market.
The first food and hospitality franchises were developed in the 1920s and 1930s.
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