New Franchise Business Ideas – Franchising offers business growth, but preparation is key. Here are 7 steps to take before expanding your business.
After the initial stages of starting a business, many entrepreneurs start thinking about how to scale. Franchising is one way to develop a successful operation. Read on to find out:
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Franchising is a type of agreement that involves reproducing a successful business model in multiple locations. As a business owner and franchisor, you will create a franchise agreement to start the process and move toward opening a new franchise.
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This agreement allows franchisees to acquire limited rights to your intellectual property, supply chain network, training system and more in order to open and operate a new location for your business.
Franchising and licensing are two different ways to share information about your brand in exchange for a fee. The difference between franchising and licensing centers around control and operations:
The type of franchise that is right for you depends on the size and complexity of your business, as well as the industry in which you operate.
Including preparation, franchising usually requires three to four months of time. This process can be fast depending on how complex your business model is.
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Franchise prices vary by industry, state of residence, and more. Sometimes it can cost less than $20,000, but some franchises cost $100,000 or more.
The Federal Trade Commission (FTC) regulates franchise operations at the federal level, but each state has its own rules and requirements for franchise operations. To make sure you don’t miss any state-specific requirements, it’s best to speak with a franchise attorney who can help you prepare the documents in your state.
When you decide to franchise your small business, you will need to prepare to hire new independent contractors to operate your individual franchises.
Before embarking on your franchise journey, you should ask yourself a few questions to ensure that your business is franchise ready.
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The answer to every question doesn’t have to be yes, but you should aim to give honest answers to highlight any weaknesses that may be in your blind spots.
According to Blair Nichols, CFE, vice president and director of franchise consulting firm FranNet, it’s best to start with an original location that already has an established presence. Small business owners, he said, “should have copied the concept many times before.” That way they have a viable model that’s proven to work anywhere.
A central element of franchising your business is giving the franchisee access to a wealth of intellectual property. This allows them to brand their franchise according to your instructions and increase the growth of your business. But it can expose you to risks if your intellectual property is not adequately protected.
Before delving deeper into the franchise process, make sure you protect the intellectual property that makes your business unique and distinctive.
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Under the Franchise Rule, you can sell a franchise to a prospective franchisee only if you provide them with an FDD that complies with FTC rules and regulations.
The FDD is like your franchise charter – it introduces the key players, defines business terms, includes financial statements, and addresses your franchise agreement obligations. In fact, it must contain 23 specific sections under the Franchise Rule:
These requirements are important to ensure that your FDD is a living document that keeps franchisees up to date.
Tip: Give prospective franchisees as much time as possible to review your FDD. It is in your best interest to only align yourself with franchisees who are fully committed to their investment – their success is your success.
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A franchise agreement is an agreement that binds you and your franchisee to certain expectations that will describe how the franchise will operate. The franchisee is an independent contractor, not an employee, and the franchisee must sign this agreement in order to comply. Once signed, it will remain in the FDD that you draft for each franchisee.
A franchise agreement does not need to follow a specific format, but the best agreements are clear and complete. You may include:
Not all of the above conditions will apply to every business model. Working with a franchise attorney can help you draft a franchise agreement that is comprehensive and comprehensive, taking the guesswork out of establishing a new franchise.
This manual is not necessarily a legal document that the franchisee signs, but is included in the franchise agreement. Therefore, it is the franchisee’s responsibility to record and comply with all associated obligations. However, franchisees will not work exactly like you. Be prepared to give up some control over your business concept and how it is executed, as long as all requirements are met.
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Once your FDD is complete, store it safely so you can access and update it when needed. Your FDD is a required document, but whether you need to submit your FDD to the government depends on the state in which you live.
States of registration, states of application, and states that are not registered have their own requirements for franchisors. For example, non-registration states require you to have a registered trademark on your disclosure documents.
No matter what state you live in, consulting with an expert can help you determine 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 should be realistic and you will 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 creating a 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 your current questions or serve as a resource to advertise the benefits you offer, such as a special employee training program.
Owning a business is a rewarding job and often requires making difficult decisions. Weigh the pros and cons of franchising for your business to help you decide if franchising is right for you.
A franchise is a great advantage for a business owner. This is a growth concept that can benefit you if your business is likely to grow. Benefits of franchising include:
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The scalability of your franchise ultimately determines how diversified, passive income you bring in. However, franchises offer unique opportunities for growth.
Franchises have many advantages, but there are also many disadvantages to operating this business model. Disadvantages of franchising include:
If money is tight, it can be difficult to sustain a long franchising game. Its high initial costs and possible legal disputes require considerable financial planning.
You will need to register your franchise according to the state in which you live. Some states require registration and franchise fees, while others require you to file a franchise disclosure document with the state or simply get a registered trademark.
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Licensing is not a substitute for franchising. Licensing rights extend to intellectual property, such as a brand name or logo, while franchising grants rights to entire business models, products and services.
Franchising is an exciting way to grow your business if you lay the right foundation in advance. It offers new markets, expanded client groups 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 is not legal advice. Statements and opinions are those of the author, and have not been checked for accuracy, completeness, or changes in law. More than 200,000 quick service restaurants in the United States do not count as company owners. Instead, these locations are franchises, meaning that the company (the franchisor) allows an individual or a group of partners (the franchisee or franchisees) to operate that restaurant location under a franchise agreement.
At first glance, opening and managing a restaurant franchise seems easier than building your own restaurant concept. They are established brands, and most of the marketing comes from the corporate office. But that doesn’t mean franchisees have an easy path to restaurant success. There is a unique set of challenges that comes with franchising. Here are 7 of them and what to do about them.
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Franchisor and franchisee are a team. For a successful partnership, the brand must complement the franchisee and the franchisee must complement the brand.
Franchise agreements are also long-term relationships – 10- to 15-year contracts are the norm. It needs to be done right. Which means that the approval process can often be long and intense.
To speed up the process a bit, make sure you gather all the documents you need and follow the franchisor’s requirements. A long (lengthy) approval process can help prevent many other problems, whether financial or cultural. For franchisees, take this time to evaluate whether a franchise is a good fit
Aspiring franchisees must be prepared to invest enough money to get the business off the ground. Between initial licensing fees and opening costs, the amount can easily be six or even less.
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