Franchising can give your business exponential growth. While franchising is a great business model to replicate, it has to be planned carefully, followed scrupulously, and applied strategically. If you are a business owner interested in growing your brand through franchising, you should know the steps to set yourself up for success.
Determine if Franchising is Right for Your Business
Your business may be an excellent fit for the franchise model, and a qualified franchise law attorney can provide invaluable insight into whether it is. Legal counsel can explain the obligations and rights of a franchise system, including those particular to your industry. This gives you a solid legal foundation to know when you are entering a commitment and avoiding problems in the future.
Before you leap, you want to be sure that you wish to franchise. Not all businesses are suited for franchising, and knowing if yours is eligible is essential. Begin by measuring your brand’s strength, your business’s profitability, and how easy it is to adapt to different places. Franchising could involve copying operations, developing a system that someone else can learn, execute, profit from, or both. A strong franchise has market appeal, standardized procedures, and a competitive advantage.
Issue Your Franchise Disclosure Document (FDD)
Any franchise operation is built upon the Franchise Disclosure Document (FDD). The FDD outlines all you need for a potential franchisee to know about your business, such as:
- Fees
- Financial performance
- Litigation history
- Intellectual property
The document creates transparency and trust with prospective franchisees.
According to U.S. federal law, franchisors must submit the FDD to potential franchisees at least 14 days before signing any agreements. This allows franchisees enough time to read the document.
An FDD is a significant legal document, and you should work with an experienced franchise law attorney who can assist in crafting an FDD. Even minor errors can cause disputes and legal action, so your FDD must be clear, accurate, and accessible. In effect, the FDD is franchise DNA, a foundation for a successful franchise relationship.
Prepare Your Operations Manual
Your franchise system has an operations manual, which is the backbone of your franchise system. The manual comprises the processes, standards, and expectations that franchisees should follow.
Essential information such as training protocols, daily procedures, customer service standards, and brand guidelines is included. The operations manual is the roadmap for turning your business model into a scalable operation.
Franchisees should be able to refer to this document and navigate every step of the business-running process. A good operations manual helps franchisees and protects your brand’s reputation by guaranteeing consistent service across all your locations. This document should take time because every detail is essential to protecting your business and enabling franchisees to duplicate your brand’s success.
Register Your Trademarks
Protecting your brand identity is essential and often one of the first steps in preparing to franchise. Consider getting your trademarks registered. Your trademarks distinguish your brand from competitors and provide the legal grounds for protecting against unauthorized use. When you become a registered trademark, you get exclusive rights to your brand’s name, logo, slogan, and other symbols that attract franchisees.
Trademark registration also helps you look more credible as a franchisor. Investors are likely to invest in a brand that has protected its identity. Working with a trademark attorney lets you know that your application meets all federal requirements and encompasses all aspects of your brand’s intellectual property. It protects you and your franchisees from future infringement issues.
Establish Your Franchise Company
As a franchisor, consider creating a separate franchise company for legal protection and clarity. A separate legal entity (most commonly a limited liability company (LLC) or a corporation) helps set up the franchise business operations from your core business. This structure keeps your main business from liability for things that might happen with the franchise.
Establishing a separate franchise company signals your long-term commitment to the franchise model. A franchise company supports, grows, and manages franchise operations only, making it easier for you to concentrate on and optimize your franchise support system. Additionally, an independent entity simplifies financials for tax filings and compliance reporting.
Register and File Your FDD
When your FDD is ready, you may have to register it with specific states. Not all states require franchisors to register their FDDs, but over a dozen states have regulations that do. Registration often requires the submission of the FDD, plus some financial documents, fees, and supplementary disclosures.
This process can be long and complicated in states with strict registration requirements. It is best to work with a franchising attorney who knows the ins and outs of each state’s registration process so that you can be sure to comply.
Accurately and punctually filing your FDD shows the franchising world that you are committed to transparency and compliance. An unregistered FDD or a late filing can result in penalties, fines, or, in extreme cases, restrictions on your ability to operate in some states.
Create Your Franchise Sales Strategy and Budget
A strong sales strategy and budget are the basis for a successful franchise expansion. The strategy will tell you your target markets, the type of franchisees you want to attract, and how you will market your franchise offering.
Think about how you will reach potential franchisees through direct advertising, franchise brokers, or industry trade shows. It all depends on how much budget you have and how long you have. A clear strategy helps you distribute resources well.
Budgeting is equally essential. You must also consider costs associated with advertising, recruitment, compliance, training, and support. A well-prepared budget does not just include initial recruitment costs.
It also includes ongoing support costs to keep franchisees happy and in business. With an established realistic sales strategy and budget, you will have the flexibility to grow sustainably and set your franchise system up for long-term success.
Franchising your business is a very ambitious venture; you must plan it and follow legal standards. Once you know what to do at each step, from creating an FDD to building a sales strategy, you can confidently expand your brand.
