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One of the fastest ways of expanding your business is by creating franchises. A lot of brands in many countries and cities are all franchises. That’s why you can find a brand such as McDonald’s in every town in the US. You may have wondered how they could achieve such a feat, but it will surprise you to know that they only followed the right business growth strategy. That’s why we’re going to show you how to start a franchise in this article. The big shots in different industries did it by creating franchise businesses and that’s how you’re going to achieve your business growth as well.
However, I want to point out that creating a franchise is not a guarantee that your business will explode into an overnight success.
Many popular franchisors at one time filed for bankruptcy because their businesses didn’t work out as they planned.
That’s why you have to follow the right strategies, legal requirements, expert advice, and operational processes to start a franchise.
The truth is that the expansion won’t cut deep into your business funds.
But, the process takes some time and costs as well.
For instance, you’ll have to deal with huge legal paperwork and make important decisions too.
But after all that, your efforts will pay off when entrepreneurs buy the business franchise.
RELATED: LIST OF LOW-COST FRANCHISE BUSINESS OPPORTUNITIES FOR SALE
Let’s explore this business model together and get you started on creating a franchise for international growth.
Note, our focus in this article is the business owners who want to turn their idea or brand into a franchise.
So, if you believe that your business is unique and worth franchising, let’s help you achieve it.
What is a Franchise Business?
This is a business model that enables different individuals to own and operate a business under an already established brand.
While the individuals manage their branches, the multinational or national company that owns the brand will monitor their operation to ensure adherence to its business processes.
The franchising brand/company is called the franchisor, while the individuals who buy the business franchise are called the franchisee.
Creating a franchise comes with lots of demands, such as operational requirements, legal documents, and disclosures.
You’ll have to meet all these requirements to qualify as a franchisor.
Once you’ve completed all the franchise laws in your state or other states, you can start a franchise and watch your business explode beyond borders.
Once you successfully sell the franchise, you’re allowing other entrepreneurs to use your business model, products, marketing techniques, and prices.
Also, you’ll equip them with your company slogans, logos, signage, etc.
Moreover, as a franchisor, you will provide the necessary training which the franchisees need to operate your business successfully.
The franchisees, in their part, will first pay the franchise fee, which is the initial financial commitment they’re expected to make.
Then once they’ve established their business branches, they’ll be paying the royalty fees as long as the business exists.
Creating a franchise is not supposed to be a spur on the moment decision.
You have to think hard if you’re ready to allow others to represent your business before you start a franchise.
But don’t be afraid to do it because many business franchises are already existing in different industries.
Some of the restaurants and supermarkets you see in every city are all business franchises.
So, if those companies succeeded, you, too, can achieve your goals.
Why Should you start a Franchise?
Many reasons propel companies to start a franchise for their business.
Some of them include:
– To increase distribution
Companies franchise their business to ensure a speedy and smooth distribution.
Instead of operating only in one locality or city, you can sell franchise rights to individuals in different geographical locations to quickly distribute your products.
These business franchisees will then open many branches of your brand across the globe.
This will take the brand products far and wider to reach all levels of consumers.
– Creating a franchise reduces expansion costs
Without starting a franchise business, you may struggle for years to achieve the level of business expansion you want.
Imagine that you have to open up shop in many countries for your business to grow; how will you raise all the money to do it.
That’s why companies start franchise to reduce the cost of growing their businesses.
The franchisees’ cash will help you to replicate your business in different geographical locations.
You’ll invest money in creating the franchise system but not as much as you would without creating a franchise.
– Creating a franchise reduces financial risks
Here is another good reason to adopt this business model.
Creating a franchise reduces your risks as a franchisor.
Starting a business in a new location is often risky.
Sometimes, companies incur financial losses in the event of business failure.
But a franchise business reduces the brunt of the franchisor’s losses since his/her investment is small.
Opening a franchise
Adopting the franchise business model is the best decision for your company to grow.
But, there’re a few steps you need to take as you think of how to start a franchise
1. Evaluate the suitability of your business
This is the first thing to do before thinking of how to start a franchise.
Even though your business is doing great in terms of sales and profit, you still need to consider other factors such as:
- Suitability of your business concept; you may have a thriving business in your locality but ask yourself if it is salable to enough to start a franchise. Also, find out if it will be easy to replicate your business, or must you be fully involved to achieve success?
- Financials; before creating a franchise, make sure that your business is already a profitable one. It will be easier to sell a profitable trademark than a struggling one. If you can establish some branches and grow them to success before creating a franchise, it will market your brand faster.
- Demand; don’t just create a franchise business without thorough market research. You must determine if the demand for your product spreads beyond your locality or city. Also, check the business competitors to know if you can take them on and grab a market share.
- Consider the change; creating a franchise is a dream come true, but you have to prepare for the accompanying changes. As a franchisor, you’ll sell your franchise, act as the teacher to your franchisee, support them, and also allow them to execute your concept in their way. So, think hard if you’re ready for all that before you start a franchise.
- Compare options; apart from creating a franchise for business growth, there’re other alternatives to consider. You can find partners to grow the business or go for debt financing. Although creating a franchise is very effective, it comes with a unique set of challenges too. So think before you leap. Remember, you’re more interested in business success and not the competition.
2. Study the Franchise legal requirements
To be a certified franchisor, you must complete every mandated legal requirement in your state before creating a franchise.
So before you start a franchise, it’s advisable to study these legal requirements to determine if you’re rightfully positioned to meet them.
For instance, one of the most important requirements you must complete is completing and registering your FDD (Franchise Disclosure Document).
This disclosure document will usually contain detailed information about your business.
It will carry your operational manual for the franchisees and your financial statements (audited).
Also, the disclosure document will contain a description of the experience which your management team has about the business.
The reason for showcasing your management team’s business experience is because you’ll be supporting the franchisees to manage their branches.
Also, the audited financials will show if your business has been making profits since you formed it.
After completing the franchise disclosure document, there may be other rules that exist in your state, which you must adhere to creating a franchise for your business.
Apart from your locality, other countries may require some additional information or legal processes before allowing you to sell a franchise.
This is why you must do this research before you start a franchise.
If you feel that everything is overwhelming, you can hire a franchise attorney or consultant to guide you through it.
He/she will also help you to prepare the disclosure document.
3. Define your mode of operation
Creating a franchise is a serious business growth strategy that comes with different decision-making key points.
After studying and familiarizing yourself with the legal requirements necessary to start a franchise, you also need to decide how you’re going to operate as the franchisor.
Some of the decisions you must make include:
- The geographical area where your franchise will cover
- Expected franchise fee which the franchisees will pay
- Royalty percentage which the franchisee will pay every month
- The franchise agreement terms
- Your training program for the franchisees and how long it will take
- Marketing strategies for your franchises
- The net worth and business experience which the franchisees must possess
- Defining the size of the territory which you’ll award to every franchisee
Also, when creating a franchise, you have to decide on which style your franchisees will adopt in operating their business.
You have to choose between the area/master franchises business or owner-operator franchisees.
In the former
The franchisee will develop as many units as he/she wants and will be working with other people who’ll be carrying out the running of the business.
But in the owner-operator method, the franchisee business owner must be there to supervise the day-to-day running of the company to ensure its success.
If you don’t make these decisions before creating a franchise, you may fail to achieve your dream franchise, business model.
That’s why we usually recommend an expert to assist you during the process.
For instance, your training program must be adequate to ensure that the franchisees can follow your business’s system to the tee.
If you want to record an impressive success, you must do everything it takes to make sure that your franchisees succeed as well.
Well, that’s the only time you can be sure of the royalty fee.
No one pays a royalty on a failing business.
4. Hire some key personnel
This is another important action to take in the process of creating a franchise for your business.
You must evaluate the strength and business experience of the staff you have to determine the extra hands you need.
Once you start a franchise and sell to individuals in many locations, you’re going to train and support them.
The journey doesn’t end when you sign the franchise agreement and collect the franchise fee.
You have to work hard to ensure that the royalty fees come as well.
That’s why you’ll employ more hands to shoulder the increasing responsibilities of the expansion involved in creating a franchise.
For instance, if you’re selling a franchise that requires special skills to operate, you’re going to need a trainer who’ll focus on equipping the franchisees with the skills they need.
It’s also important to have a franchise advocate in your employment to provide the answers and solutions to franchisees’ business questions and problems.
Moreover, you may need to hire these important staff members even if you already have someone performing that role.
For example, your in-house marketing assistant may not be skilled in handling the demands of franchise marketing.
In such a situation, you’ll need to hire another marketing assistant who’ll work side by side with him/her to achieve your goals.
How to create your franchise?
1. Prepare the necessary documents
Once you’ve decided on the above points, the next thing to do is complete all the paperwork and legal requirements in your state.
Some of the criteria to fulfill include:
Franchise Disclosure Document
This is the first legal document you must provide to proceed with your registration as a franchisor.
The franchise disclosure document is a mandatory requirement that you must fulfill before selling franchises.
Without it, you will not qualify to be a franchisor.
The disclosure document is a compulsory document for all franchisors, as stipulated in state laws and federal laws.
As per the law’s stipulation, you must give every franchisee a copy of the franchise disclosure document at least 2 weeks before the signing of the agreement or the collection of the franchise fee.
A franchise disclosure document has 23 sections, which you must fill accurately.
These sections are called “item,” and each one will contain all the information your potential franchisees need to know about the business model.
Your disclosure document specifies everything about your brand, the franchise itself, and every legal obligation binding you and your franchisees.
For instance, the franchisees will see details about start-up costs, royalties, territories, etc.
According to franchise experts, it’s best to prepare a multi-state franchise disclosure document.
The reason for this type of FDD is to qualify you to sell franchises in many states.
Also, the way you prepare your disclosure document will place you in the position to offer direct franchising or multi-unit developer franchising.
So, it’s important to work with experts when creating a franchise.
Franchise agreement
This is another important document that every franchisor must provide.
It is the agreement that will create a binding relationship between you and the franchisee.
In the franchise agreement, you’ll grant the franchisee the license, the rights, and the obligation to start a business and operate it under your trademarks.
The agreement will also stipulate the designated territory where the signee can open up the franchise business.
Moreover, other forms of the franchise agreement are under the franchise agreement, such as master franchise agreement, area representative agreement, and development agreement.
Operations Manual
This is a confidential manual that every franchisor must create and give to the franchisees.
It is one of the conditions attached to creating a franchise.
This manual contains all the information they’ll need to run the franchise business.
You have to provide this road map so they can understand the operational processes of your company.
Without this manual, the franchisee may fail at representing your brand in their respective units.
That’s why you’ll provide this guide that’ll cover areas such as:
- The products and services of the franchisor
- How the franchisee provides the products and services?
- The product development process
- Exclusive suppliers of the franchisor
- The pricing formula of the goods/services
- The prices of the goods/services
- Customer support & services
- Accounting
- Human resources management
- Marketing & development
- Suppliers, procurement, ingredients, and signage
But remember, you must update the manual regularly, depending on the frequency of changes in the company’s processes.
These documents are necessary for the successful registration of your company as a franchisor.
The FDD, the agreement, and the operations manual are the main ones you must consider and prepare for before creating a franchise.
But try to find out if there’re other state laws and requirements you must meet before selling a franchise.
This is very important, especially if you plan to sell outside your state as well.
2. Complete your Franchisor registration
After preparing the paperwork necessary for creating a franchise, the next thing is to start the registration process.
The process here will vary depending on your state, but the main ones include:
Registering your trademarks
creating a franchise means allowing other individuals to operate with your trademarks in different locations.
A trademark consists of a business name, logo, or both.
It can also be a business slogan that people use to identify your goods or services.
Moreover, your brand identity mustn’t be left without a strong registration, especially through a federal registration process.
In the FDD section 13, you’re expected to provide all the necessary information about your trademark to your franchise prospects.
Therefore, registering your trademark is crucial to the growth of your business as it will deter competitors from using it illegally.
All you have to do is to follow the legal process of registering a trademark in your state or country.
If you don’t know anything about it before creating a franchise, your attorney will guide you through it.
Establishing a franchising company
This may sound confusing, but you must create a new company representing the franchise.
For instance, the new entity may be Goldilocks Franchising LLC or any other name you chose.
Once you’ve established it, the next step is to open an account in a bank for the new company.
The reason for the account is to enable your accountant to prepare the opening balance sheet, which you must provide when registering your FDD.
Register the franchise disclosure document in “Franchise Registration States”
This is also another registration to complete if you want to sell a franchise.
You have to register your disclosure document in the states where you aim to sell your franchises.
The FRS is those states that mandate franchisors to register their FDD with a State appointed regulator and also renew the document yearly.
After completing the necessary registrations in creating a franchise, you’ll wait for the state to approve your FDD.
It may take several months to receive feedback from them and take some months to get the final approval.
But the process may be faster in your state.
3. Position your brand and build a compelling brand story
After registering and acquiring the necessary approvals for your franchise business, the next thing is to position your brand for success. How?
You need to invest quality time in developing and communicating a compelling story about your brand to evoke interest in your company.
Try to communicate the value proposition of your franchise system so that prospective franchisees will understand how it will impact their lives.
Your value proposition should be the first thing to determine before creating a franchise.
The truth is that developing a brand story is not a day’s job.
Also, communicating an effective value proposition will take time, but it’s worth the pains.
Carrying out these essential actions will enhance your marketing efforts and attract the right kinds of franchisees to your business.
When it comes to creating a franchise and selling it, many franchisors start by employing every available marketing channel without positioning their brands for recognition, respect, and interest.
That’s why you should complete this stage before kick-starting the implementation of your marketing strategies.
4. Develop your marketing plan
I know you may be asking, “Why do I need to create a marketing business plan when my business is already popular and profitable”?
Well, the answer is simple.
You need entrepreneurs to buy the franchises, and you’ll have to reach them first before all that.
Before you started your company, you must have taken the time to create a business plan which hard a marketing section.
So, you should also understand the importance of this stage.
Your marketing plan will help you to sell franchises without draining your company funds.
So, to create an effective business plan, make solid decisions on different aspects of your franchise marketing, such as:
- Deciding on your sales goals over some time (6/12 months)
- Mapping out the characteristics and qualities of your target franchisees
- Evaluating your franchise value proposition
- Deciding on the amount of money you’ll invest in selling the franchises over a stipulated period
- Checking if your website will make your brand more attractive for individuals to join your franchise system.
- Developing a lead-capture form that’ll encourage prospective franchisees to inquire more about your franchise
- Setting up a conversion process that will educate potential franchisees about the brand, the advantages you provide, and the benefits they’ll reap with the franchise system.
After this process, you’ll be equipped to create an actionable marketing plan.
The next important thing to do is evaluating your marketing channels.
There’re lots of marketing channels to include in your business plan for the business.
But the one you’ll use has to be right for the brand.
Instead of struggling without good results, you can mix one or 2 channels to achieve better results.
Some of the sales channels you have to explore are as follows:
Broker organizations/franchise brokers
After creating a franchise and getting ready to sell it, you have to reach as many people as you can.
The brokers are usually working with individuals who want to buy franchises to determine the best one for them.
If you use these brokers, it will be easier to locate qualified prospects for your franchise.
But this marketing channel may not be cost-effective because brokers are known to ask for commissions up to 50%.
Organic web search engine optimization
This is another channel to attract the attention of prospective franchisees.
Start by building a website that’ll tell your brand story and showcase the franchise value proposition.
Don’t forget the lead capture page and create a new website for the franchise business, if possible.
Paid web (PPC ads)
You can use PPC ads on Google or other popular search engines to market your franchise.
You can find vendors who’ll assist you in managing your AdWords campaigns.
Using PPC will help send traffic faster to your franchise website, but the cost may be higher than your sales budget.
But to ensure more conversion, design a detailed landing page and always encourage your prospects to provide their information in the contact form.
Using this marketing channel is simpler and will send organic traffic to your franchise website.
You can leverage the far-reaching power of social media platforms such as Pinterest, Facebook, LinkedIn, and Instagram to boost your sales.
The good news is that you’ll spend little or no cost, but the bad news is that it takes time and persistence to build your sales via organic social media.
Instead of depending only on organic traffic from your social media campaign, you can invest some money into social media ads.
This marketing effectively targets and builds specific audiences, but it involves money and close monitoring and management.
Franchise PR (Public relations)
Using PR to represent your brand on different media channels can go a long way to boost your franchise sales.
They can utilize channels such as magazines, special publications, local news, and national news stations.
The good thing about using a franchise PR is that they can spark interest and trust for your brand.
However, you’ll invest some money in hiring a suitable and credible PR agency for such results.
Influencer marketing
There’re lots of franchise influencers that can help you to achieve your sales goals.
These individuals include bloggers, authors, and content curators who’re knowledgeable and popular in the franchise business community.
While they’ll help to ignite trust in your brand, you’ll have to pay for their services, which is normal.
Franchise portals
You can also use this channel to reach individuals who search for franchise opportunities to explore.
These portals amass huge traffic of prospective franchisees through organic SEO and PPC.
You can get your franchise listed on various portals for a fee and also buy leads from them.
But, some of the leads may not be the quality you need for your business.
All these channels can help you to achieve your franchise sales goals.
You can use one or try to achieve a mix of more than one channel for more impact.
5. Important strategies to guide your franchise launching
Before launching your franchise, try and make sure you take the following actions:
Create a franchisor business plan:
This business plan is not the same as the conventional method.
While creating a franchise, you must know that a different business plan is necessary to cover some aspects of the new franchising company.
For instance, in the business plan, you’ll include the impact of the franchisee performance on the company.
Also, the business plan must cover the effect of franchisee satisfaction on the growth, retention, and innovation of the franchise system.
You will also include the strategies to manage the changes that’ll occur in the new system.
Moreover, the business plan will show how extensions and renewals of the franchisee agreement will affect your organization’s planning.
Finally, the franchise business plan will capture how to plan, manage, and report the group marketing funds given the expansion.
The setting of achievable goals:
Every adventure starts with a goal, and so should your franchise business.
You have to set sales goals for the first few years of launching your franchise.
So, decide on how many franchises you want to achieve for five years, at least.
Competitor research:
Businesses operate in a competitive environment.
Almost every industry has many players already competing against each other for market shares.
Therefore, make sure that you know what your competitors are offering to their franchisees in terms of the franchise fee, obligations, territory sizes, royalty fees, etc.
Take time to evaluate the metrics with which they operate and try to develop a competitive FDD as well.
Develop a dual offer:
It’s best to sell your franchise to “multiple franchise units” as well as individual units.
So, make sure that your offer covers both types of franchisees to ensure faster growth.
Although it means more time and work, in the long run, it becomes profitable.
Develop and all-state compliant FDD:
If you want your franchise business to boom in every state, start by positioning it to be so in the FDD.
Make sure that this document can be registered and filed in every state. How?
By including the required addendums for possible modifications that can make it suitable for different state laws.
Learn more:
You can’t be a successful franchisor without learning everything about the business model.
Before creating a franchise, make sure that you gather adequate knowledge about the franchise system even before selling your first franchise.
You can do so by attending events, getting involved with different franchise organizations, and learning more from your franchise lawyer too.
FAQ
1. What is a development agreement
This agreement is also known as “multi-unit development”.
It is an agreement where a franchisor assigns a development territory to a franchisee where he/she can develop and operate multiple outlets.
2. What are franchise filling states?
These are the states that mandate a franchisor to file a “notice” with them before offering a franchise.
The notice may be on an annual filling form or a one-time filing.
3. Do I need a lawyer to start a franchise?
A franchise lawyer is a must-have if you want to create a successful franchise system.
You’ll need their experience and knowledge to guide you through the processes of creating a franchise.
Also, the lawyer will be responsible for preparing a competitive FDD to ensure your franchise business’s success.
4. Can a consultant or franchise developer prepare the FDD?
No way! A qualified and certified franchise lawyer must prepare the FDD because it’s one of the legal requirements you must meet before registering as a franchisor.
5. How long will it take me to the franchise?
It all depends on your state or country.
The usual time it should take to complete the legal proceedings may vary between 90 and 120 days.
But it’s also possible to take more days depending on you and your franchise team.
6. Do I need a business plan before creating a franchise?
Yes! You’ll need to write a new business plan that’ll capture the expansion given that the franchisees’ activities will have a huge impact on the company as a whole.
But bear in mind that it will be different from the conventional one.
Final Words
Creating a franchise is not so simple, but it’s worth the effort.
It is a business model that helps companies to achieve faster growth and expansion with lower capital investment.
This is not to say that you won’t spend money in the process, but the cost won’t be as high as when there’s no franchise business.
Imagine what it will cost your company to establish and operate multiple units in different locations across states.
That’s why creating a franchise is a cost-effective strategy that you can even utilize for an international reach.
Although there may some hurdles along the way of your plans, your set goals and plans will help to guide you.
Also, work with a franchise lawyer, developer, and consultant.
Their wealth of experience and knowledge may be the saving grace you need to excel.
