A franchise is a legal and commercial agreement between two parties in which allows one party, called the franchisee, to market the product or services of the other party, the franchisor, using the franchisor’s trademark and operating methods.
Becoming a franchisor can be a smart and cost effective way to expand your business. Investment is only done for the initial unit and franchisees will pay to use your business concept. They will manage and finance their businesses but will give you royalties based on their turnovers. As a result, there’s less liability and involvement on your part for running several operations of your own.
Here are some things you need to consider to get you started:
1. Assess. Check if your business is franchise-friendly. Are you profiting enough to expand? Is your product or service marketable on a long term basis? Are the margins enough to make it profitable for both you and the franchisee? Can your business be replicated easily on other locations in terms of resources and potential customers?
2. Research. Create a market research report to know what the effective strategies in attaining profitability. You can start by going around to competitors posing as a customer to get a general idea of their operational methods that you can adopt.
3. Innovate. After having the data from your market research, develop a unique business concept that sets you apart from other competitors. Although you may offer a similar product or service, having a unique concept will set you apart from them.
4. Study cost. You need to study the cost for funding the franchise. You will also need enough capital to help the franchisee invest in the property since you are responsible in helping them start their franchise. It is in your best interest to ensure that the franchisee is successful since you will receive royalties based on their turnovers. Getting a business loan or grants from the government or entrepreneurs who support your industry can be the best option.
5. Develop a clear business plan. Have a prospectus that’s directed to the franchisees. It should provide a detailed description of your product and service, what sets you apart from other competitors, target locations, initial franchise fees, support set-up, and estimation of potential revenues.
6. Work out the legalities. It is important to fill out a standard disclosure agreement as required by the Federal Trade Commission and have it registered if needed with the state. You might need to consult a lawyer that specializes on this.
7. Send audit reports. Get an accountant to provide audit reports so that franchisees will gain more knowledge on your company’s worth.
8. Make an operations manual. It is important to have a comprehensive operations manual for the franchisee’s reference. It will guide them how to run the business, how to set-up and manage a new outlet, and will detail any marketing initiatives and training that you will finance.
9. Look for the right people. It is imperative to find people with good business experience to uphold your business reputation. You can conduct interviews and ask for references to gauge potential franchisees. If your franchisees fail to provide good service or product, your brand will surely suffer.
10. Advertise. Market that opportunity for franchising your business. Fund campaigns directed to this cause either by print mail or attending on tradeshows and other public relations events.