Planning for Setting Up a Franchise?


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Many small businesses consider setting up their business as a franchise. There are several advantages to this model, including the ability to bring in an ongoing revenue stream. This increases the core business’ profitability while also rolling out a successful model to other individuals who dream of being an entrepreneur. The core business often provides a model and ongoing support so that an entrepreneur does not have to start from scratch.
Some tips to help lead to a successful franchise include:

Create a Model

The business owner who hopes to franchise his or her business must carefully consider how his or her business works. Franchisees want a successful model to follow. They may have never had experience running a business before and may need a very detailed plan to get their business operational. The business must have guidelines that it can easily explain and disseminate to franchisees. This may include certain logos, slogans, marking campaigns, trademarks and other intellectual property that shows the core business. It may also include instructions on finding the right staff, training and ongoing support.

Write an Operations Manual

Before opening the business as a franchise opportunity, business owners should create an operations manual. Franchisees can use this manual to reference policies and to follow best practices. Additionally, this manual may explain the rights and responsibilities of the franchisor and franchisee, including any requirements for the franchisee to get approval for major decisions.

Protect Your Brand

In order for a franchise to be successful, it must be recognized by the community. A positive reputation can go a long way in securing this. The franchise agreement should outline guidelines regarding the use of the business name and franchise assets. The business owner should take all diligence in monitoring the use of the brand name and assets and require prior approval when necessary.

Select New Markets

It is important when considering to whom to franchise your business that you consider the location where you wish to expand your business. This may be part of the region where you have your core business, operations on another coast or other strategic locations. When new franchises are opening up, it may make sense to have the first few locations near the core business if there is already brand recognition in this area. However, the franchises should be far away enough that success in one location does not cause the core business or other franchise locations to suffer.

Carefully Select Franchisees

While opening a franchise can provide positive results in the form of franchisee fees and a cut of future profits, it can also put the brand at risk if the right franchisees are not selected. In addition to securing an agreement with someone with adequate capital, it is also important to weigh the potential franchisee’s work history, education and ability to properly run a business in the way you want it run. All potential franchisees should go through an interview process and be properly vetted.

Monitor the Franchises

Monitor how the franchises are doing. Review their annual report, balance sheet and other accounting documents. Plan occasional on-site visits if possible. Monitor social media accounts and other accounts in which franchisees are in contact with their core customer base.

Develop a Plan for Growth

Consider how you want your business to grow. This may be becoming a recognized entity in the area. It may be to become a statewide operation, regional operation or nationally-recognized operation. Aim for steady growth that is based on your strategy.

Provide Support

The main reason why many franchises fail is because the core business did not provide adequate support to ensure success. The business owner may expand too quickly and not be able to fully support the franchisee. Business owners should be prepared to be in touch with franchisees, especially when they first start. This may be through onsite visits, phone calls, email or other communication mechanisms. Franchisees may also want to communicate with each other to learn about potential challenges and solutions.

Seek Legal Assistance

Before embarking on a legal contract that may last for years to come and be used on numerous franchise operations, it is important to contact a lawyer for assistance. A lawyer may help a business owner complete a franchise disclosure document. He or she may also help establish a franchise agreement, complete applications to protect intellectual property and take other steps to protect the business owner’s rights and legal interests. A business lawyer may also be able to establish other documents that can assist the business owner, such as employment documents and contracts with vendors. He or she may also explain various laws and how the business owner can comply with them.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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