How To Start A Franchise Business – Franchising offers business growth, but preparation is key. Here are seven steps companies should take before scaling up.
In the early days of entrepreneurship, many entrepreneurs began to think about how to become bigger and stronger. Franchising is one way to develop a successful operation. Read on to find out:
How To Start A Franchise Business
Franchising is an agreement that involves replicating a successful business model in multiple locations. As a business owner and franchisor, you must create a franchise agreement to begin the process of opening a new franchise.
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This agreement allows the franchisor to have 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 brand information for a fee. The difference between Privilege Center and License regarding 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.
Franchising typically takes three to four months, including preparation. Depending on the complexity of your business model, the process can happen much faster.
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Franchise costs vary by industry, location, and more. Sometimes they can cost less than $20,000 total, but some franchises pay closer to $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 miss any state-specific requirements, it’s best to speak with a franchise attorney who can help you prepare your state-specific documents.
If you decide to franchise your small business, you must be ready to take on new independent contractors who will run their own franchise.
Before starting your franchising journey, there are a few questions you should ask yourself to make sure your business is ready to be franchised.
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You don’t have to answer “yes” to every question, but you should aim to provide honest answers that highlight any weaknesses in your blind spots.
According to CFE Blair Nichol, vice president and director of franchise consulting firm FranNet, it’s best to start with a real website that already exists. “Small business owners should repeat the concept multiple times,” he says. That way, they have a repeatable model that’s been proven to work everywhere.
An important part of the franchising business is that the franchisor acquires a substantial amount of intellectual property. This allows them to brand their franchise based on your guidelines and encourage your business to grow. But it can put you at risk if your intellectual property isn’t adequately protected.
Before delving 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 only sell a franchise to a potential franchisor if you provide them with an FDD that complies with FTC rules and regulations.
The FDD is like your franchise’s Articles of Organization – it introduces the key players, outlines the terms of operation, includes financial statements, and explains the obligations in your franchise agreement. In fact, according to the franchise rules, it should have 23 specific parts:
These requirements are important to ensure that your FDD is a living document that keeps franchisees up-to-date.
Tip: Give potential franchisees as much time as possible to review your FDD form. It’s in your best interest to only align with franchisees who are fully committed to investing – their success is your success.
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A franchise agreement is a contract that binds you and your franchisor to certain expectations that define how the franchise operates. The franchisor is an independent contractor, not an employee, and must sign this contract to go with the franchisee. Once signed, it will reside on the FDD you collect for each franchisee.
Franchise agreements don’t need to follow a specific format, but the best agreements are clear and comprehensive. May include:
Not all of the above requirements apply to every business model. Working with a franchise attorney can help you prepare a comprehensive and accurate franchise agreement, taking the guesswork out of setting up a new franchise.
This certification does not have to be a legal document signed by the franchisor, but is included in the franchise agreement. Therefore, it is the franchisor’s responsibility to document and follow up on all fulfilled commitments. However, franchisees won’t operate in exactly the same way as you. Be ready to relinquish some control over your business concept and how it is implemented, as long as all the requirements are met.
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Once your FDD file is complete, it should be stored securely so that you can access and update it when needed. Your FDD is a required document, but whether you must file an FDD form with the government depends on the state you live in.
Registered status, registered status, and unregistered status have their own requirements for franchisors. For example, unregistered states require you to register your trademark on published documents.
Regardless of your status, 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 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 a strategy include:
A full and honest FDD is a useful explanatory tool when trying to sell your franchise to a new franchisee. It can help answer questions of the moment and also serve as a resource for your benefits, such as special training programs for employees.
Business ownership is a rewarding business, and it often requires tough decisions to be made. Weigh the pros and cons of franchising to help you decide if franchising is right for you.
Franchising is a great asset to business owners. It’s a concept that encourages growth, and if it works for your business, it could be beneficial to you. Franchise rights include:
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The scalability of your franchise ultimately determines how much diverse passive income you bring in. Regardless, franchises offer unique growth opportunities.
There are many advantages to MLM, but there are also some disadvantages to running this business model. Disadvantages of franchising include:
It’s hard to keep a franchise’s long game going when money is tight. Their high initial costs and potential legal disputes require extensive financial planning.
Depending on the state you live in, you may need to register your right to vote. Some states require you to file a franchise registration, others require you to file your franchise disclosure document with the state, or simply trademark it.
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Licensing is not a substitute for franchising. Licensing rights extend to intellectual property such as brand names or logos, while franchising grants rights to entire business models, products and services.
Franchising is an exciting way to grow a business if you lay the right foundations up front. It provides new markets, expands the customer base, and leads to greater profits, but it also requires a lot of money and time.
This section of the website is for informational purposes only. The content is not legal advice. Statements and opinions are those of the authors and have not been evaluated for accuracy, completeness or change in law. A franchise is a business in which the business owner grants others a license to operate. Franchise fees are collected by selling the franchisor’s products or services under the franchisor’s brand name. A franchisor is a business that grants licenses to franchisees. It is a contractual relationship between the franchisor and the franchisor.
Before starting a franchise business, it is imperative to understand the factors in choosing it. Most companies these days opt for franchising over startups. Here are some reasons why the franchise is trending every day.
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A franchisor buys a business that has already established itself in the market and has perfected its business strategy and plan. So they don’t have to deal with the problems that all new companies face.
A franchisor business does not have to establish recognition in the market as it is acquired from franchisors who are already established in the market. This provides a huge competitive advantage for franchisees to capture market share.
The business has proven the model, allowing it to work effectively, which benefits the franchisee because the franchisee can operate like a proven model to achieve its goals and increase profitability.
Buying a franchise business is beneficial to the franchisor as he does not have to incur such expenses. They can benefit from the marketing activities carried out by the franchisor.
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There are many franchise opportunities on the market, which type you choose is up to you
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