How to Franchise Your Business in 9 Steps
Thinking about franchising your business? Here's how to start a business franchise plan in 9 steps with Fifth Third.
As a business owner with a successful track record and an eye toward growing your market share, you may want to look at franchising your business, rather than opening multiple storefronts. A franchise business model allows you to maintain your brand and the quality of your products and services while distributing management responsibility to local business owners who share your vision.
Is Your Business a Good Candidate for Franchising?
Becoming a franchisor involves a shift from owning and managing your own business to developing a model that can be easily replicated by others. SCORE offers some key things to consider:
- Do you have strong processes in place? Standardized operational processes and systems which can easily be transferred to new locations provide a good foundation for your franchise and offer a consistent experience for your customers.
- Is there a market for your services in different locations? Evaluate whether your target customers are in the locations you are considering.
- Is your business sufficiently capitalized? While the amount of money you need to launch a franchise varies greatly depending on the nature of your business, you’ll need sufficient capital to work with a consultant to launch your franchise company as well as funding to market your franchises and provide ongoing training and support.
- Do you like managing and training others rather than running your own business hands-on? As a franchisor, you’ll move to a role of corporate manager rather than focusing on running the day-to-day operations of your business.
- Has your business developed a recognizable brand that others are asking to become a part of? If consumers in other communities are asking for your products or other entrepreneurs are interested in your brand, you might have a scalable concept for franchising.
Pros and Cons of Owning a Franchise
If it looks like your business may have franchising potential, take some time to reflect on the pros and cons before making the leap to becoming a franchisor:
- Faster growth than opening additional storefronts. Franchising allows business owners to increase their geographic reach and market share relatively quickly.
- Possibility of increased revenue and profits with minimized risks. Franchisees create additional revenue streams for franchisors, paying weekly or monthly royalty fees that are typically a percentage of their gross sales.
- Franchisees have a financial incentive for the business to do well. With their own funds invested, franchisees are driven to make their businesses (and yours) successful.
- Upfront investment. Launching your own franchise business requires an upfront investment for consultants to help set up the business model, licensing agreements, operations and training manuals as well as ongoing funds for advertising, marketing and recruitment.
- Less control over individual businesses. While your franchise sets the standards for business operations, day-to-day management falls on individual franchisees.
- Regulations to set up and maintain a franchisor business. Franchising is governed by both federal and state laws and missteps can be costly, so it’s best to seek professional advice.
9 Steps to Franchising a Business
If you decide that franchising is a great way to expand your business, the following nine steps will help set you on the path to success:
- Do your research. Ensure you have a saleable concept that can be easily duplicated and that consumers in other locations are interested in your products or services.
- Enlist experts including a franchise attorney and accountant who can help you navigate the highly regulated world of franchising.
- Develop your business model. Decide how you will operate as a franchisor. That includes selecting the geographic locations where you will offer franchises, territory size, establishing your franchise fees and whether franchisees have to buy products and equipment from you, and determining how you will market your franchises.
- Create an operations manual. This how-to guide for franchisees provides information on training, operating standards, system procedures, marketing plans and approved suppliers.
- Ensure you have the right documents in place including a Franchise Disclosure Document (FDD) and a franchise agreement. The FDD provides information about 23 areas of your business to prospective buyers and is the legal foundation for your franchise. A franchise agreement outlines how you and a franchisee will conduct business and lists the initial and ongoing fees a franchisee pays to enter into the business and use your trademarks.
- Protect your brand. Register your trademarks with the U.S. Patent Office and establish clear guidelines for their use with potential franchisees.
- Launch your franchising company. Typically set up as a corporation or limited liability company, your new franchise company will sell and support your franchises. Marketing your franchises is broader than marketing your products, so make sure your business model is easy to understand and communicates your brand story.
- Choose franchisees carefully. Find potential franchisees who believe in your business model and are committed to growing the business. Their success is ultimately your success.
- Provide ongoing support through training and marketing. To help your franchises flourish, you need to be involved on a continuing basis, picking new franchise locations, offering training on your operating system and providing brand-compliant marketing materials.
Expand Your Market Share Through Franchising
Franchising can be complex and time-consuming, but it can offer both financial and expansion rewards if you can commit to providing ongoing support to your franchisees. If you have a brand that people are attracted to and want to switch to overseeing rather than opening new businesses, franchising may be a great way to grow your business footprint.