The Keys To Successfully Franchising A Business.
If you’re thinking of franchising your business, here’s what you must do to be successful.
Franchising For The Small Business Owner.
Franchising is a way to grow your business that lets you sell your knowledge, experience, and concept to dedicated individuals who put up the money to open and operate new franchise locations. Franchising lets you expand with less overhead and fewer day-to-day operating headaches, while the franchise buyers pay you upfront fees and ongoing royalties.
Franchises are known to the public as a well-promoted name like McDonald’s®, not the names of the individual franchise owners. As a result, the general public may not realize that many businesses with multiple locations are in fact franchises with each individual location being managed by a franchise owner. And, while the public may not be aware of how large franchising is in the economy, statistics tell the story.
- Each year more than $1 trillion in goods and services are sold through franchises in the United States.
- 35% of all retail goods and services are sold through franchises.
- There are almost 1,000,000 individual franchise outlets in this country.
- Each working day a new franchise opens every 5 minutes.
- Over 300 different types of industries and businesses are franchising.
Such factors, as the movement from a manufacturing to a service economy, technological advances, and women becoming a large part of the workforce, have provided expanding opportunities for people to own their own businesses. The growth of franchising has accelerated the desire for private business ownership.
A HISTORICAL DEFINITION
Historically, the word “franchising” meant the granting of a right or privilege to an individual or group. In more recent times, it broadly may include business arrangements known as franchises, dealerships, and distributorships, to name a few.
A REGULATORY DEFINITION
The Federal Trade Commission defines “franchising” as a business relationship in which an individual owner:
- Operates Under A Brand Name (such as Planet Fitness® or Century 21® or Dunkin’®);
- Receives Significant Control Or Assistance (from the parent company); and,
- Pays A Fee To The Parent Company ($500 or more within the first six months of operation).
If a business opportunity includes these 3 elements, it’s a franchise and the franchising company must comply with the rules of the Federal Trade Commission in the selling of franchises.
A BUSINESS DEFINITION
Franchising has been described as:
- a method of Distribution of goods and services;
- a method of Marketing;
- a method of Growth; and,
- a method of Capital Acquisition.
Increasingly, franchising has become:
- a method of Employment.
For a company wishing to expand to other locations, franchising offers the opportunity to have branch locations operated by “dedicated” managers rather than company employees.
THE TYPES OF FRANCHISES
In the past, franchises have been generally categorized as “product and trade name” franchises or “business format” franchises. Today, the real difference is that in a “product and trade name” franchise, the franchisor is usually the manufacturer of a product, which it wholesales to the franchisee for resale. In a “business format” approach, the franchisee is usually not reselling a product manufactured by the franchisor. In both types, the franchisee is operating the business according to the franchisor’s rules, methods, and systems.
Why Do Companies Start Franchising?
For the small business owner, franchising is a way of quickly growing their company by “acquiring” growth capital and dedicated local management from the franchise buyer.
Small business owners who desire to have representation through branch locations typically have three options.
- Grow by opening company owned locations.
- Grow by franchising.
- Grow by a mix of company owned and franchised.
Some Reasons For Franchising Your Business.
- To grow.
- To grow quickly ahead of potential competitors.
- To grow your system-wide sales quickly through branch locations.
- To get franchise buyers who invest their own money.
- To minimize employee headaches by getting an onsite owner to handle the finding, training, and supervising of employees. “An owner doesn’t call in sick.”
- To get quality local management who will increase sales, lower expenses, increase customer satisfaction, and maintain quality standards. Just as a property owner will take care of a property better than a tenant, a franchise owner will manage a location better than a company employee.
- To reduce your financial risk of opening and operating branch locations since the franchise buyer takes on that risk.
- To lessen corporate overhead since an onsite owner doesn’t need as much supervisory oversight as company owned locations.
- To increase your buying and marketing power.
- To let people in other parts of the country enjoy your concept.
- To get local franchisees who will be totally dedicated to your product line if you distribute a product.
- To take the business to the next level.
- To free up your time so that you can grow the business since the franchise owner takes care of the branch location’s day-to-day operating headaches relieving you of that responsibility.
- To retain your current key employees by giving them a path to grow with the company.
- To help other people get into a business for themselves in your field and become successful.
- To cash in on your hard work and experience by “selling” it to others.
- To establish a network of locations and be able to service national accounts.
- To maximize your equity / value / sale price with the least effort.
- To provide a profitable exit strategy to sell out after you’ve established a number of franchises.
- To make money.
Is There A Downside To Franchising My Business?
Are Total Profits Higher With Company Owned Locations?
While a company operated store “on paper” may appear more profitable than a franchise, the profit must be offset by the additional corporate supervisory costs needed for company stores, and the possible reduced sales volume in the location due to the lack of the presence of a dedicated, invested local owner. Since, franchising allows a company to open more franchise locations (for the same dollar investment) in a fixed period of time (like 1 year) than company owned locations, the total profits generated from multiple franchise locations should more than offset the higher profitability of one individual company location.
Some may say that you could lose some control by franchising your business. While you may lose some “instantaneous” control — like being able to walk into a store and change the layout, or paint the walls pink, or change the store hours — you maintain “delayed” control by informing the franchisee of changes they must make, backed up the contract that they’ve signed with you compelling them to conform. Since a franchise owner is dedicated and wants and needs the business to succeed, in many ways, you have better control over a branch operation with a franchise owner than if a company manager was in charge.
Ongoing Support Obligations To The Franchise Owners.
Yes, you are obliged to provide ongoing support to the franchise owners. But the reality is that if you had company owned locations rather than franchises, you’d have to provide even more support!
The preparation of a Franchise Disclosure Document is not overwhelming and the document doesn’t reveal any of your trade secrets.
But the relationship between you and the franchise buyer is a contractual one. Both sides have to live up to their obligations. Are there a lot of lawsuits in franchising? There are almost 1,000,000 individual franchises in this country. If lawsuits were happening all the time, there’d be no such thing as “franchising”.
Individual Location Success Rate.
While the success of an individual location may depend largely on the efforts of the franchise owner, the same could be said of a company owned location being dependent on the efforts of a company manager. The franchisee’s commitment should give an individual location a better chance of success as a franchise.
Dealing With Dedicated Owners.
This is the double edged sword. The franchise buyer is an “owner”, and if you don’t provide the support that they expect, you’ll hear about it, unlike a company manager who “goes along with the program”.
Here’s The Keys To Successfully Franchising A Business.
Key #1. You Must Have A Really Good Business Concept.
The business must lend itself to having branch locations and it must be successful both financially and in terms of having its concept or method of operation “together”. The length of time that the business has been in operation is relatively unimportant. It should be in an industry or field that is expected to grow over the next several years or have a new twist if it’s in a mature field. It should be able to successfully compete for customers and it must generate sufficient sales and profits to “make the numbers work”.
A franchise buyer (with the right background) should be able to be trained in the day-to-day operations in a short period of time. They should realistically be able to recover their investment within a reasonable period of time from the earnings of the business.
Your concept could possibly need some adjustments before franchising based on current standards in franchising, efficiency, and profitability.
Competing For Franchise Buyers.
A person buys a franchise to own a business, to become independent, to escape from the corporate world, to seek financial security, and to have an asset to pass on to future generations.
They’re buying your business concept, experience, trial and error, brand, and support, which all adds up in their mind to a “feeling” that by joining up with you, they should have a good chance of success.
Your marketing strategy to attract these franchise buyers can be simply stated: “Your franchise must be more desirable than that of your competitors.”
There are many ways of being “more desirable” such as, higher potential earnings, better support, lower fees, lower investment, better retail products or services, better media recognition, better location availability, and the list goes on.
The reality is that there are very few “exciting” or “unique” businesses. While exciting or unique isn’t important, it should appear “attractive and interesting” to the right franchise buyer.
You know how to compete for customers; now you must prepare to compete for franchise buyers.
Key #2. “Growable” Management.
You must have a management that possesses the ability to grow with the company. You must be able to delegate and manage a competent support staff. You must have a consultative personality that can work well with dedicated, invested, franchise owners.
Key #3. All About The Money,
You make money in franchising from franchise fees, royalties, and perhaps other possible revenue streams like supplying a product, providing administrative support, or renting locations or equipment to the franchisee.
Franchising is about getting an army of dedicated, hard-working business owners giving you an ongoing piece of their revenue stream.
Getting Growth Capital.
Growing a business requires capital. But, since the franchise buyer puts up money to open an individual location, it takes far less capital to grow by franchising than company owned. But you’ll still need some capital to get the franchising process going.
No Financial Projections.
Never give a franchise buyer any financial projections. They don’t have the right to see the financial statements of your current company owned locations and you have no obligation to provide them with that information. Starting out, you don’t have enough locations to make solid financial projections, and there’s too many variables that you can’t control (including the franchisee’s work effort) that could affect a franchisee’s financial performance.
Keep in mind that you’re selling a franchise buyer on the opportunity to become a member of a team, belong to a brand, use your business concept, and most importantly, receive your support. You’re not selling “return on investment.”
(After the first several franchises open, a prospective buyer could contact those franchisees to gather financial information.)
You’re not required to provide financial projections, it doesn’t make sense to do so, and it’s not necessary to sell franchises.
Key #4. A Solid Franchising Game Plan.
You must develop realistic timeframes, goals, and strategies for the number of franchises to be open in the first couple of years. Only sell what you can support. Proper planning is the key to successfully franchising your business.
Key #5. Commitment & Determination.
Once you’ve decided to grow by franchising, you must make a commitment of time and money along with the determination to make this succeed.
Even if you have the best business concept, you won’t reach your goals without commitment and determination.
Key #6. An Organized Organization.
Everything’s got to be organized. Growth requires structure. You must slowly build your organization with the right people who possess the skills to interact with, advise, and guide the franchise owners.
Key #7. Strong Policies, Procedures, Controls, And Quality Standards.
Your policies, procedures, IT systems, and controls, should tell the franchisee how to operate and manage the business. In a sense, they’re an extension of the contract that you have with each franchisee, and should help control the franchisees and protect you. Strong controls and quality standards help ensure that each franchise is run the way you want, and help maintain consistency from one franchise to the next for everyone’s benefit.
Key #8. Great Support.
You must provide great support to the franchise buyers, such as, training, opening assistance, ongoing advice and guidance, marketing and advertising assistance, research and development, and regular communication. Your support must grow and evolve as the number of franchises grows. You must do everything that you can to help each franchise become successful.
Key #9. Build Your Brand.
As you grow, your brand name should experience wider and wider recognition, acceptance, and desirability by the public. Franchisees must protect the brand’s image in the operation of their franchise.
You must continuously enhance and grow your brand, maintain an attractive and informative website, and develop effective marketing and advertising campaigns through social media and other methods.
Key #10. Legalities.
Franchise Disclosure Document (FDD).
The Franchise Disclosure Document is a consumer protection type of document required in the selling of a franchise which provides a prospective franchise buyer with certain background information, such as their required investment, support you’ll provide to them, contact information for franchise owners, and the financial statements of the franchising company. The information in the document must be accurate and complete.
The document also contains the contract (franchise agreement) requiring them to operate the franchise according to your standards while protecting your image and reputation, and helping ensure quality operations.
A prospective franchise buyer must receive this document at least 14 days before you sign them up. The document must be filed and approved by regulators in certain states before you can offer a franchise for sale in the particular state. This document should be prepared by an experienced franchise lawyer.
Some lawyers may say that the franchise legal documents are the most important aspect of franchising your business which is a little like saying that your existing company’s incorporation paperwork was the most critical thing to your current company’s success. The contract only comes into play when either the franchisor or the franchisee feels that the other is not fulfilling their obligations.
By far, the most important aspects of franchising are that the business concept makes money for the franchisee, and that the franchisor provides the promised support.
Protect Your Federal Trademarks.
Your trademarks need to be filed, approved, and registered with the U.S. Patent And Trademark Office.
Franchisees are relying on you to protect your trademarks and enhance and build name recognition as your company grows, which should result in increased sales and owner equity for each franchisee.
Your Franchising Company.
Regulations require that franchising companies provide up to 3 years of audited financial statements. Since most small private businesses don’t have or want audited financial statements, you’ll need to set up a new LLC or corporation. This is pretty simple to do and could also help shield your current company from liability, make selling your current company easier, etc.
Your current operating company remains separate and no one (including competitors) gets to see your current operating company’s financial statements.
Key #11. How To Get Franchise Buyers.
How Many Franchises Do You Want To Sell In The First Year?
Decide on the number of franchises that you’d like to sell in the first year. The answer should be directly related to how many franchises you’re able to train and support. Next, geographically, should they be “nearby” to take advantage of your existing brand recognition, where you know the services and prices that customers expect, where you’ll be able to easily and quickly get to a franchisee’s location to help guide them, or can they be a little farther away and still have a great chance of success?
To sell the first several franchises, you have to do a lot of different things, which requires commitment, consistency, trial and error, persistence, and money.
And obviously, to sell franchises, you need leads. More leads equals more sales.
There are free ways to generate leads like referrals from customers, employees, business associates, suppliers, social media postings, blogs, newsletters, and onsite signage. And, there are paid ways like social media advertising, search engine advertising, franchise lead referral sites, public relations, influencers, email, media advertising, and franchise shows. Over time, as the number of franchises grows along with your name recognition, referrals, publicity, and social media should become more and more important.
You must spend money on lead generation!
Referrals from customers, employees, suppliers, business associates, newsletters, etc. could be the best leads of all since they already know about you — “they have the religion”.
While the seriousness of a typical referral may not be as good as an internet lead (since the internet prospect had to do more work to find you), the overall signup rate on referrals should be high.
Publicity from social media sites, radio and TV, special events, print media, etc. can be productive. Get postings, stories, videos, messages, articles, and press releases published directly by yourself or by a paid PR firm. Contact appropriate influencers.
Getting posted / published takes work. Postings must be interesting in the eyes of viewers and articles should stress how your company is different from the competition.
Your current social media postings, should mention “Franchises Available” since someone local who follows you may be interested in buying a franchise or they may have a friend or relative farther away who could become interested.
Try to get favorable mobile and desktop screen positions organically. Using paid social media to get leads may be difficult for a new franchisor since prospects in other geographic areas probably have not heard of the company.
But as your name recognition grows, leads from social media should grow. You must continuously build your social media presence and create a community of followers with consistent, upbeat, positive posts, stories, videos, and messages on LinkedIn, Facebook, Twitter, Instagram, Tik-Tok, etc.
Search Engine Advertising.
Paid search ads on Google and others could prove productive but must be closely monitored.
- Your ads should briefly, specifically, and accurately describe your business, while hopefully minimizing wasteful clicks.
- Use keywords that would logically occur in the mind of a potential buyer. All keywords should include the word “franchise”.
- Experiment with ads; experiment with keywords.
- Your ads on desktop devices should ideally appear in positions 1- 8 on the screen.
- Your ads on mobile devices should ideally appear in positions 1- 4 since the screen is smaller. (Over 50% of searches are on mobile devices.)
- Search engines have all kinds of bells and whistles. Keep in mind, all you’re trying to do is have a prospect find your ad, click on it only if they find it of interest, and email or call you for more information.
Franchise Lead Generating Websites / Portals.
Franchise lead generating websites can be helpful but these websites are in reality a middleperson between you and Google. Make sure that the lead quality is good and they’re not recycling leads from one business sector to another. Watch these companies like a hawk. When you advertise on these sites, your company will be shown alongside your competitors. Instead, if you did your own Google campaign, there’s a chance that a prospect may only like your ad, and not even look at your franchise competitors. Advantage: Google Ads.
Email and direct mail (perhaps with a telemarketing follow up) may be best used when a franchisee needs a specific background, such as a hair stylist or plumber.
Conversion of Existing Similar Businesses.
Eventually, as you grow, you’re going to get inquiries from existing, similar, companies who may want to join you. Why would they be interested in joining you?
- Your Brand: As you grow, and your name becomes better known, they’ll want to join, if for no other reason than to get a higher sales volume by associating with your brand name.
- Your System: They want access to your operating systems, buying power, etc.
- Fear / Self Interest: They realize that if they don’t buy your franchise and join you, you’ll sell a franchise to someone else in their area who’ll become a direct competitor.
Radio / TV Ads.
If radio or TV advertising is being used to attract local customers, mentioning “Franchises Available” in these ads could generate some interest.
Franchise shows travel on circuits throughout the country. These shows usually run on weekends in local hotels or in exposition centers. Before participating, check the mix of exhibitors and the quality of the show.
Business brokers or franchise brokers sound like they’d be an ideal way of selling your franchise. But a broker’s interest (to get a commission) may not be in your best interest. They may push prospective buyers on you who aren’t really right for your concept and operational philosophy. Worse, they may make promises or financial projections that you can’t keep or that violate federal laws. And, brokers won’t be totally dedicated to your concept — they’ll also be working for other competing companies. Never, ever, ever let a broker “sell” for you. If you use them, use them only as a “lead referral” source like Google.
Key #12. Selling Franchises.
Okay, you’ve got leads. Now, how do you sell them?
Is It Hard To Sell A Franchise?
No. Selling a franchise is virtually identical to the interviewing process used for hiring an employee — but this “employee” comes to you with money.
When you hire an employee, you’re selling a relationship. It’s the same with a potential franchise buyer only this is a relationship that will last years / decades. The franchise buyer should go into this with their eyes open — you don’t want them to be disillusioned 6 months after buying. This is not a high pressure sale. In order to establish a solid relationship, you must possess a good knowledge of your business and industry, be warm and believable, and be a good listener. Selling is listening.
It’s Not Like Selling A House Or An Existing Business.
Selling a franchise is not like selling a house or a building or even an existing business. When you sell an existing business, there are the business’s several years of financial statements that must be analyzed and reviewed by accountants. When you sell a franchise, all you’re selling is an idea, a concept, — a business that doesn’t yet exist.
And, once you sell a house or a building or an existing business, you have no further relationship with the buyer. (That’s why it’s okay to use a broker for that type of sale.) When you a sell a franchise, that’s the beginning of a lengthy relationship. It’s like getting married. It’s why you must be very selective especially with the first few franchises.
You Must Be Involved.
You must be involved in the selling process since nobody knows the business better than you or is more capable of explaining your philosophy to a prospective franchise buyer. And nobody has your passion or commitment to make this succeed.
What Are Franchise Buyers Really Buying?
- They’re buying your concept.
- They’re buying the future of your brand.
- They’re buying your experience, and your trial and error.
- They’re buying the happy, positive referrals that they hear from your franchise owners.
- They’re buying your expected support, guidance, vision, and hand-holding.
- They’re buying the sales / profit expectations that they project themselves and also what they hear from your franchisees.
- They’re buying your trust and respect.
- They’re buying a “feeling” that if they invest in your concept and follow your system, they’ll have a good chance of being successful.
- THEY’RE BUYING YOU!
You Must Be Very Selective.
You must only sell to those who have the right background, financial ability, work ethic, personality for working together, will follow your system, and will give a good reference to future franchise buyers. Never sell to someone just because they have the money.
The reality is that no person can truly evaluate a business opportunity in several phone calls and a few meetings. Since there aren’t any franchises yet in existence, there are no referrals for the franchise buyer to call. All they can really decide is if they like the business concept and if they like you, trust you, respect you, and feel that you’ll be there to help them.
Your Franchise Buyers Turn Into Your “Franchise Salespeople”.
The sales process does evolve. The person who buys the 6th franchise will call the first 5 franchisees and ask them if they like it, if they’d do it again, if they’re making money, if you help them, etc. So, the first 5 franchisees turn into franchise “salespeople”– for better or worse.
Control The Selling Process.
You must totally control the selling process and keep in mind that you’re selling, but you’re not “selling”.
Key #13. Focus, Speed.
You could have many, many, many franchises. But you must focus on the first, second, and third.
The first few franchises must be successful. If you don’t do the first few franchises correctly, you’ll never get to many, many, many.
Fortunately, the speed of growth is totally in your control, and is a function of commitment and determination.
The journey must begin with a single step.
Key #14. Prodding, Pounding, & Persistence.
Meanwhile, you have an operating business to run which could compete for your time and attention with the franchising effort. Prodding and pounding and persistence are required to grow any business including one that starts selling franchises.
Key #15. Evolution.
No business can sit still. You must continuously evolve and provide franchisees with improved operational methods, services, and marketing.
Key #16. Mystery & Magic.
Franchising isn’t mysterious or magical.
The question isn’t “How many people will buy franchises?”, it’s “How determined are you to make this succeed?”.
Don’t go looking for franchising “magic” — there isn’t any — this is just “business”.
Should You Franchise Your Business?
In the last decade, franchising has expanded to include an ever-widening variety of businesses, products, and industries. Its application to new concepts and emerging industries will only increase in the future.
The sale of franchises is relatively unaffected by the economy. In fact, arguments can be made that franchising does quite well in a weaker economy, since the potential buyer is possibly stagnating at their present position, is eager to control their own destiny, and has assets available (such as equity in a home or a severance package) which can be used to buy a franchise. This increasing desire of people to own a small business gives you the opportunity to grow by
franchising your business.
A simple test of “Can I franchise my business?” is whether you could open company owned branch locations [if you so desired] managed by a company manager. In most cases, “franchising a business” is a very similar process, except that instead of a company manager, you’d have a “dedicated” manager.
- First: Decide if you want to grow by opening branch locations.
- Second: Decide if it would be desirable to have committed owners operate your branch locations under your controls and standards, freeing up your time from day-to-day branch level operating headaches, giving you time to focus on growing the business.
- Third: Decide on goals for the first year of franchising.
We’re Here To Help You With Franchising Your Business.
What You’ll Find Online.
If you want to start franchising your business, you’ll probably do a search for “How To Franchise My Business”, “Franchising A Business”, “Franchising”, “Franchise Consultant”, or something similar in hopes of finding information to guide you in the franchising process. You’ll see articles from online sources and print media, from sites that offer franchises for sale, and from various state governments, universities, and trade organizations. Many of these may have been written by people who’ve never fired an employee, made a payroll, run a company, or franchised a business.
We’ve Helped Many Companies Grow Through Franchising.
They’ve Sold SEVERAL THOUSAND Franchises.
No Other Franchise Consulting Firm Can Match Those Results!
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What We Do.
We help very small companies (and large ones) start franchising their businesses. Our experience, knowledge, personal attention, and quality of work are the best in this field and we’re recognized as the leading franchise consulting firm in the country.
All of the work we do to help you start franchising — Planning, Research, Disclosure Documents, Operations Control Manuals, Marketing and Selling Programs — is based on our many years of experience helping successful franchise companies.
What Makes Us The Leading Franchise Consultants?
Many Client Success Stories
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- If we don’t think you’re ready to franchise, we’ll tell you what steps you need to take before starting a franchise program.
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If you wish to start franchising your business, call us. We’re here to help.
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