How To Create A Franchise From An Existing Business
Posted by Seth Saperstein
15 July, 2016
So you want to expand your business into hundreds more, but you don’t know where to start? Well, a good place to start thinking is whether to franchise or not. It may just be the right move for you and your business.
With this huge undertaking it’s important to not only hire a franchise attorney or franchise consultant to help you, but also to understand both the pros and cons of franchising an existing business. One benefit to franchising is minimizing costs for growth. This means that since the franchisees are the ones paying to buy outlets, your costs will be minimal, which will keep you from going to a bank for a loan. Franchising is also a great way to make a profit from royalties with relatively low risk. Unfortunately, being the owner of a franchise means not being on the front lines and having less control over managers and employees. It can also be difficult to make changes to your business since now all franchisees will have to come to a consensus for any changes. Although having a franchisee start a business at another location has relatively low costs, having the ability to franchise legally can cost up to $100,000. This might be the perfect time for a merchant cash advance. Once you’ve weighed your options, it’s time to follow these tips to figure out how to get started:
Figure out if your business is ready. In many instances, franchising and expanding will result in more profits, but there are times where franchising can result in diseconomies of scale. Make sure that growing too big won’t slow down operations for your business and in the long run decrease profits. For a business to be “franchiseable”, it also needs to have a process that can be duplicated and doesn’t need your special touch on every product. The business is not the only part that needs to prepare itself for change- you do too. If you plan on owning a franchise, you’ll no longer be the one handling the customers. You’ll no longer be the one opening the door in the morning and closing up shop at night. Instead, you’ll have an even more managerial oversight than before, supporting and training new franchise employees and owners.
Understand the legalities. In order to legally be a franchise, you must register a Franchise Disclosure Document with the Federal Trade Commission. Although this sounds simple, this can be a lengthy process accompanied by confusing procedures. Some states, such as California and Illinois, even have additional requirements. Be prepared to dedicate months just waiting for this process to be completed and make sure to get a franchise consultant or franchise attorney to make the process run quicker and smoother.
Create a business model. A franchise can’t be run with the same terms that are used to run a small business. Instead, franchises have contracts and models dependent on many different factors. Some things to consider while constructing your business model are franchise fees, royalty percentages, terms, location boundaries, training procedures, requirements for franchisees and last but certainly not least, marketing.
Hire people to help franchise. Now that you’re no longer working in your actual store, you’ll quickly notice that there’s too much work for just one person when looking to franchise your business. Hiring people to help the franchise will become essential. This includes trainers, directors and people to handle any problems franchisees are having. It will be difficult to find qualified people that are willing to set aside their prior job to join a new franchise, so be patient and build trust with your new employees.
Sell your franchise. Unfortunately, word of mouth doesn’t sell every franchise, in fact, word of mouth hardly sells any franchises. If you want to sell your franchise you’ll need to hire an independent franchise marketing firm or attend franchise fairs. Even then, you’ll still face challenges such as telling a compelling enough story for people to decide that your business is worth franchising. Investors are facing high risks here so make them feel comfortable and give them your best pitch.
If your business is stable enough to franchise and has grown big enough to do so, don’t hesitate, get started today!