Creating an Effective Franchise System

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For many entrepreneurs, starting a franchise makes more sense than venturing out into completely unknown territory. The franchisee benefits from operating a business with a recognized name and reputation while the franchisor is able to receive a steady income stream by allowing others to use its name.

However, in order to be successful with the franchise, it is necessary to establish a franchise system that clearly spells out the duties and responsibilities of all relevant parties. Some steps to create an effective franchise system are discussed below.

Create a Business Plan

Like with any startup company, it is important that you clearly contemplate the future of your business. Discuss how you will establish the business and how it will be part of a larger franchise. For inspiration on how to make your franchise a success, research your relevant competition. Consider how you will delineate your business from theirs.

Research the Uniform Franchise Disclosure Documents filed by the competition to get ideas on things you can emulate. This is possible by checking with your Secretary of State or state Department of Corporation. Often, there is a method that allows you to research this information online.

Protect Intellectual Property

Protect your intellectual property before you start the franchise. Register your trademarks with the United States Patent and Trademark Office. Taking this preliminary step can save you time and money before you start using an image, logo or name that is too similar and that you will have to change later. You want to be able to provide your business with a distinct identity that will help customers become familiar with your business and recognize it in the future.

Identify Franchisees

Consider the characteristics of franchisees who you would like to represent your business. Identify the minimum amount of capital that is necessary for someone to become a franchisee. Consider marketing methods within this particular subset.

Establish Operational Standards

Create a system of rules that you want franchisees to follow. After all, it is your business and reputation on the line. Develop the policies, standards and procedures that every franchisee should follow in order to provide consistency and quality. These operational standards are the foundation of your franchise. Ensure that you contain a provision in your franchising agreement that allows you to modify this information as you learn and grow in this space.

Identify Training and Support Opportunities

You have a vested interest in the success of your franchisees. Therefore, it is important to provide them with solid training and support as they begin and maintain the franchise. A training program can help franchisees learn about the proper way to operate the business. Ongoing support provides franchisees with the resources that they need to be a success. Include assistance for such matters regarding employment, staff training, customer service, lending negotiations, lease negotiations and site selection. Include the right to inspect the franchise in your franchising agreement.

Identify Franchise Fees and Provisions

Include clear language pertaining to the fee structure, your rate of compensation and the timeline when a franchise agreement will expire. Include information about renewing a franchise term and any first rights of refusal.

Seek Legal Assistance

In order to run a compliant franchise system, you must follow a large variety of local, state and federal regulations. A business law attorney who has experience with franchise agreements may provide you with details regarding how you can comply with these regulations. Additionally, he or she may help you legally register your franchise with the state.

To avoid personal liability, you may wish to establish a separate legal entity for your business, such as an LLC or corporation. A business law attorney may provide suggestions on other professional services that you should retain, such as those of a financial planner, marketing director, advertising specialist and franchise consultant.


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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