How To Start A New Franchise Business – Franchising offers business development, but preparation is key. Here are seven steps a business should take before expanding.
After the initial stages of starting a business, many entrepreneurs start thinking about how to expand the scope. Franchising is one of the ways to develop a successful operation. Read on to learn:
How To Start A New Franchise Business
Franchising is a type of contract that involves replicating a successful business model in multiple locations. As a business owner and franchisee, you must create a franchise agreement to begin the process and move toward opening a new franchise.
Franchise Business Success Vs. Independent Business Success
This agreement provides franchisees with intellectual property, a supply chain network, training systems, etc. Allows you to get limited rights to open and manage a new location for your business.
Franchising and licensing are two different ways to share your brand information for a fee. The differences between a franchise and a licensing center around control and operation:
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, the franchise usually takes three to four months. Depending on how complex your business model is, the process may move faster.
Expand To New Locations
The cost of the franchise varies by industry, country of residence, etc. Sometimes, it can cost as little as $20,000, but some franchises push the cost up to $100,000 or more.
The Federal Trade Commission (FTC) regulates franchising operations at the federal level, but each state has its own rules and requirements for franchising operations. To make sure you don’t miss any state-specific requirements, it’s best to speak with a franchise attorney who can help prepare the documents in your specific state.
Once you have decided to franchise your small business, you must prepare to hire new independent contractors to manage their individual franchise.
Before embarking on your franchising journey, there are a few questions you should ask yourself to ensure your business is ready for franchising.
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The answer doesn’t have to be “yes” to every question, but you should aim to give honest answers to highlight potential weaknesses in your blind spots.
It’s best to start with an original location that already has a presence, according to Blair Nichol, CFE, vice president and CEO of franchise consulting firm FranNet. Small business owners, he said, “have already replicated this idea several times. That way they have a repeatable model that has been proven to work everywhere.”
A key component of franchising your business is giving franchisees access to a wealth of intellectual property. This allows them to brand their franchise according to your guidelines and also promote the growth of your business. However, if your intellectual property is not properly protected, you may be exposed to risks.
Before starting the franchising process, make sure you protect the intellectual property that makes your business unique and recognizable.
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Under the Franchise Rule, you may sell a franchise to a prospective franchisee only after filing an FDD in accordance with FTC rules and regulations.
The FDD is similar to the articles of organization of your franchise – it introduces the key players, defines the terms of operation, includes financial statements and addresses the obligations of your franchise agreement. In fact, according to the franchising regulation, it should consist of 23 specific sections:
These requirements are essential to ensure that the FDD is a living document that informs franchisees with the most current information.
Tip: Give potential franchisees as much time as possible to review your FDD. It is in your best interest to only align 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 define how the franchise will operate. A franchisee is an independent contractor, not an employee, and must sign this agreement to be eligible for the franchise. Once signed, it resides in the FDD you design for each franchisee.
A franchise agreement does not have to be in a particular format, but the best agreements are clear and complete. Yours can be:
Not all of the above conditions apply to every business model. Working with a franchise lawyer can help you draft a complete and concise franchise agreement, taking into account the possibility of creating a new franchise.
This manual is not necessarily a legal document signed by the franchisor, but included in the franchise agreement. Therefore, it is the franchisee’s responsibility to register and comply with all closed obligations. But franchisees don’t operate like you. Be prepared to give up some control over your business concept and how it is implemented, as long as all requirements are met.
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Once the FDD is complete, it should be stored securely so that you can access and update it as 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.
Registration states, filing states, and non-registration states each have their own requirements for franchisees. For example, non-registration states require you to obtain a registered trademark in your disclosure documents.
No matter what state you live in, consulting with a professional can help you determine exactly what to do with FDD.
Franchising your business is a great opportunity to sell your idea of success to others. The business goals you set for your franchise should be realistic, and you need a realistic strategy to achieve them.
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Your strategy should be specific to your business, community and growth goals. Here are some good ideas to consider when formulating your strategy:
A full and honest FDD is a useful explanatory tool when trying to sell your franchise to a new franchisee. This can help answer questions right now or serve as a resource for benefits you offer, such as a special employee training program.
Owning a business is rewarding work and often requires difficult decisions. Weigh the pros and cons of franchising your business to decide if franchising is right for you.
A franchise is a key asset for a business owner. This is a growth-friendly idea and can benefit you if your business is able to expand. The benefits of franchising include:
Franchising Advantages And Disadvantages
The scalability of your franchise ultimately determines how much diversified passive income you generate. Regardless, franchises offer unique opportunities for growth.
Franchising has many advantages, but there are several disadvantages to operating this type of business model. Disadvantages of franchising include:
If money is tight, it can be difficult to sustain a long game franchise. Their high initial costs and possible legal disputes require extensive financial planning.
Depending on the state you live in, you may need to register your franchise. Some states require registration and franchise fees, while others require you to file your franchise disclosure document with the state or simply obtain a registered trademark for it.
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Licensing is not an alternative to franchising. Licensing rights apply 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 expand your business if you lay the right foundation in advance. It offers new markets, expanded customer pools and greater profits, but it also requires a lot of money and time.
This part of the website is for informational purposes only. The content is not legal advice. References and reviews are the opinions of the author and have not been checked for accuracy, completeness or changes in the law. The information you provide through our inquiry form is only shared with the franchise business you own. they chose
The franchise business will only contact you via email and/or phone at the email address and phone number you provided.
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Our infographic will help you weigh the pros and cons of going the franchising or independent startup route.
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