In this post, we’ll share our answer to one of our clients who contacted us for franchise consulting services at FranVue.
Q: I have a successful business that I believe would be suitable for franchising. How do I start a franchise company? What types of advisors am I going to need, and where can I locate them? Can you recommend a good source of information to get me started?
A: First of all, congratulations on creating a profitable business. It’s great that you are considering franchising as a way to grow your brand and reach new markets. You have asked some very good questions, so let us begin to answer them one after the other.
When you’re thinking of starting a franchise, the international franchise Association (IFA) is a great place to begin your research on this idea. The IFA is the world’s largest franchise association and offers a wealth of resources that can help you begin the process. Visit the IFA website to start your research about all things franchising.
A franchise company is not a simple or inexpensive venture to start. There are several requirements you will have to fulfill and many other things that are important, even though they are not legally required. Here are some of the requirements for starting a franchise
· Legal. As a prospective franchisor, you will need to create a standard franchise disclosure document to give to franchisees. The Federal Trade Commission (FTC) requires that all franchise companies have this document (also known as the Uniform Franchise Offering Circular) if they want to sell franchises in the US. Additionally, some individual states also have registration requirements that you have to meet if you want to franchise outlets in those states. It’s best to hire an experienced and competent franchise lawyer to ensure that you satisfy the legal requirements correctly. Remember to check the experience and references of any franchise attorney you’re considering before making your choice.
· Accounting. You will also have to prepare audited financial documents for your franchise brand. This is part of the disclosure requirements under the legal category we discussed above, so there is no way you can complete the legal aspect unless your financial statements have been audited. Also, you will need to choose whether you want to use your current business entity as your franchise company or register another company to franchise your business idea. You will require the services of a savvy accountant to create these audited statements and educate you on the best business structure for your franchise. As with any franchise lawyer, be sure to hire someone who has experience working in the franchise space and check references before choosing this person.
· Systems. At the core of every successful franchise company is systems. When starting a franchise, you will have to create and fully document the systems your franchisees will use to operate their businesses smoothly. You will also need to create a training program that will explain everything a new franchisee needs to know to succeed in the business. In addition, you will have to come up with marketing plans that a new franchise owner will use to bring customers to their doorstep. As a potential franchisor, you also have to develop a sales system for recruiting new franchisees into their franchise company. You can see there’s a lot of work to do to get your franchise company up and running. While you may outsource this work to outside consultants, you have to ensure that you check references because these people work differently and have different charges for their services.
· Mindset. It is also important to have the right attitude and focus in order to be a successful franchisor. In your current business, you make all the decisions, and you have workers who do all you ask of them without any questions or resistance. However, your franchisees are not your workers (at least, not directly), and you have to ensure that you don’t treat them as if they work for you. Successful franchisors persuade franchisees to get them to do what they want instead of giving orders. This approach may not be as efficient or as quick, but you will notice that you encounter a lot of resistance from your franchise owners if you fail to use this method. We don’t know of any advisors that can help you with this subject matter, but there are a lot of industry meetings you can attend to interact with other franchisors. Make sure to take full advantage of these as learning opportunities.
Finally, we would like to give you a word of caution. Many franchise advisors will tell you that you need an initial capital of at least $500,000-$1,000,000 before you even consider becoming a franchisor. And when you begin operations, you may need to put in more work than you have ever done for about 2 to 3 years before you can begin to earn any money on your franchise company. And it could also take longer, say, 3 to 5 years.
Building a successful franchise company comes with great satisfaction and rewards, but you also need to pay a great price to achieve this goal. So before you begin this process, you need to make sure you are ready to pay the price and set realistic expectations, and you will do okay.
