how to build up a franchise business

How to create a franchise for your business (6 simple steps)

• 1. Evaluate your business The first thing to create a franchise is to ask yourself if your business is ready or not to be franchised. ...
• 2. Learn about legal requirements ...
• 3. Decide the conditions of your business ...
• 4. Filter potential franchisees ...
• 5. Establishes the operation system and its restrictions ...
• 6. Monitor your franchises and keep growing ...

Full Answer

Do franchise owners make money?

Although franchisors cannot forecast income, as a franchisee, you can definitely make money. It’s important to assess your costs regularly and make...

Are franchise fees paid yearly?

Franchise fees are usually on a monthly basis. The fee is a percentage of your revenue, and the royalties can range from 4% to 12% per year.

How much does the average franchise owner earn per year?

In a study from Franchise Direct, the average franchise owner makes $80,000 a year before tax. However, the range of income is quite large: anywher...

What kinds of franchises are available?

In general, there are three types of franchises available: business, management and product distribution. A business franchise gives you the rights...

How Long Should It Take to Franchise My Business?

Typically, franchising your business takes from 90 to 120 days. Depending on unique factors related to your business or industry, there could be variations. A lot also depends on who you are working with and your internal team.

How long does it take to develop a franchise?

The franchise development process typically takes between 90- to 120-days to go from where you are today to being a franchisor legally able to offer and sell franchises. However, once you “franchise your business” you’re just getting started.

What Are the Franchise Laws and What Is a Franchise Disclosure Document?

Franchising is regulated and requires compliance with federal and state franchise laws.

Can a Franchise Developer or Consultant Prepare My FDD Instead of a Franchise Lawyer?

No. Your FDD is a legal document that requires the integration of federal and state-specific franchise laws and regulations and should only be prepared by a qualified franchise lawyer.

How Do I Get Started?

By reading this guide, you’ve already taken the first step! Now that you have a solid foundation as to what franchising is all about and the steps involved, start building the right team to help support and guide you in franchising your business .

How long do you have to give FDD to franchisees?

It’s required by federal and state law and is the legal foundation for your franchise. You are required to give prospective franchisees your FDD no less than 14 days before signing any agreement with a franchisee or accepting any payments from a franchisee.

What is the first stage of franchise development?

Stage 1 – The Franchise Development Stage is the franchise development stage where you take the legal and business steps necessary to call yourself a franchisor and start selling franchises. During the franchise development stage, major milestones include developing and issuing your FDD, preparing your operations manual, and competitively benchmarking your franchise offering relative to your competitors.

Why is it important to start a franchise?

It is important to start a franchise keeping the potential risks in mind. While a successful franchise offers many advantages such as economies of scale and huge expansion opportunities, a new franchise being set up can go both ways; either be successful or end up a failure. Therefore, a good business owner will always move with the risks and drawbacks firmly in mind.

How to get a franchise up and running?

Arrange a huge amount of start-up capital to get the franchise up and running. The exact amount will depend on the type of business you expect to run. Start-up costs may take a long while to recover. If your efforts are successful, you will begin to recover these costs quickly.

WHAT IS FRANCHISING?

In a franchise business, a contract is drawn up between two independent parties, under which one party (the franchisee) is granted the right to market a product or service using the trademark or trade name of another party (the franchisor). Under this agreement, both franchisor and franchisee are bound by certain obligations towards each other. The franchisee has to pay a fee to the franchisor for the right to use their product/service, and the franchisor has to provide trademark rights and backing to the franchisee.

What is franchising chain reaction?

You need to keep in mind that franchising is a chain reaction: the franchisor sells a business idea and name to the franchisee, who then sells end products to consumers.

Why do franchisees have to be backed?

They have the backing of an established franchisor organization, which further lowers the risk factor. Profit margins are also expected to be higher as a known brand is being sold.

What is franchising in business?

Here, the franchisor sells the franchisee the right to market an established business, including the brand name and trademark. There is an ongoing relationship between both parties. The franchisor assists the franchisee in launching and running the business, supplies the product (s), provides training and marketing plans and helps with financing. In return, the franchisee pays royalties and fees to the franchisor.

Why is franchising important?

The franchisor can set quality control and service standards for all their outlets. Also, the franchisee is self-motivated to work hard as they have a stake in the success of the business. This leads to better workplace efficiency and productivity levels.

How much does it cost to start a franchise?

Franchise costs vary widely depending on the industry and business you choose to invest in, not to mention where you live or plan to do business.

How long do you have to get a copy of your FDD before signing a contract?

The franchisor is required to provide you with the FDD at least 14 days before you sign a contract, though it’s a good idea to request a copy earlier in your initial phases of research. You can typically download a PDF of the FDD, though some franchisors might be willing to send you a hard copy. 5.

What are some online lenders?

Other options include crowdfunding or lenders based entirely online. Online lenders like Kiva and BlueVine aren’t part of the traditional financial industry populated by banks and credit unions. These digital lenders tend to leverage technology for more streamlined or automated approval processes. You could also use an online business marketplace like Lendio or Fundera to compare a network of funding options in one spot.

How to get a copy of a franchise disclosure document?

Reach out to the franchisor for a copy of its franchise disclosure document (FDD), which contains detailed legal information about its franchise group along with financial data like the average gross revenue of its locations.

What to do if you don't have a franchise?

If you don’t have the initial investment costs at the ready, you may need to tap into outside financing to launch or run your franchise. Many banks, the SBA and franchise-specific lenders offer financial help for would-be franchisees. Other options include crowdfunding or lenders based entirely online.

Why do you need a business plan?

A business plan is necessary if you plan to apply for a loan to help with startup costs. Lenders want to know that you have a viable plan for turning a profit and sustaining your business over the long haul, because it helps them evaluate whether you’ll be able to pay it back.

How long does a franchise contract last?

Franchise contracts come with terms of five to 20 years. At the end of the term, you can often choose whether to renew the contract or discontinue your franchise. At contract signing, you’ll likely need to also pay any upfront fees or initial investment expenses.

What is the biggest challenge of building a franchise?

The biggest challenge of building a franchise is taking the success of the individual business and scaling it to a franchise model. This means it needs to be profitable, needs to service an active market, and needs to include systems that can be easily duplicated.

Why is a strong system important for a franchise?

Just because there is a market for an individual market does not mean that market is large enough to translate to franchise success. Franchise demands must be widespread.

What Does It Mean to Franchise a Business?

Franchising is a type of agreement that entails reproducing a successful business model across multiple locations. As the business owner and franchisor, you would create a franchise agreement to begin the process and move toward opening a new franchise.

How to Franchise a Business

Once you decide to franchise your small business, you'll need to prepare to take on the new independent contractors that will run their individual franchises.

Franchising Your Business: Pros and Cons

Business ownership is rewarding work, and it often requires making tough decisions. Weigh the benefits and drawbacks of franchising your business to help inform your decision of whether franchising is right for you.

What are the traits of a franchise?

The new world order doesn’t change the basic ingredients of such a relationship: service, reliability, sociability and trust for the sake of a happy customer.

What are the benefits of franchising?

Benefits to the franchisor in business format franchising can include more sales and geographic extension of the brand, and the company standards are maintained for consistency in the public eye. Benefits to the franchisee include a turn-key operation with support, design and supplies provided to establish an up-and-running business .

What is traditional franchising?

Traditional Franchising. In this type, the franchisor licenses its trademark and logo but doesn’t supply the set-up for the franchisee’s actual business to run. The franchise is associated with the original brand, often selling products made by the franchisor. For example, beverage and car manufacturers often are set up in this way.

What does a franchisee pay for?

The franchisee pays a royalty, initial fee or both to operate under the particular name and use the brand's methods. As the founder of a private surgical center franchise, I've learned what it takes to build a successful franchise. Let's look at two basic types of entrepreneurial franchises: traditional franchising and business format franchising.

How to avoid price gouge?

Set reasonable prices. People don’t mind spending money for things they want, but they don’t want to feel foolish. Overpaying can accomplish that. This also means you should avoid the temptation to price gouge when temporary changes occur in the neighborhood.

What is franchising in business?

Franchising is a way of business by which an established brand can extend its reach. This is done by franchising to others who will be perceived as associated with the brand and sell the products or services as if they were the actual established brand. The association involves a business arrangement in which the franchisee pays for ...

Is social media a judgment system?

Social media is not a new judgment system of your franchise services. It’s part of the judgment system that has always been in place. It’s just another way for people to access your business and decide whether they want to do business with you.

What is a Franchise?

The Federal Trade Commission defines a franchise as a business relationship with three primary components:

What is franchising in business?

Franchising generally consists of developing additional outlets through the sale of franchise rights to independent investors. These investors will then use your name and system of operation. An initial franchise fee is paid to the franchisor by the franchisee in return for the rights to operate a business under the franchise trademark.

What is a trademark in franchising?

A trademark is a representation of the “brand” – the entire character and persona of the concept. While many companies will start franchising before their trademark is completely registered, you will definitely want to have begun the process.

What is a successful prototype for a franchise?

Your franchise needs a successful prototype – the real-life example of the possibilities of your business. An active, exciting operation allows prospects to picture themselves running your franchise. But beyond a demonstration of the viability of your concept, an original location can also become a training center for new franchisees and a testing location for new products, services, or techniques.

What is an operations manual?

A robust Operations Manual is also needed to detail written procedures that standardize your methods and become your training manual for new franchisees. It should cover everything from start-up activities to marketing, personnel management, and office procedures. It’s best to work with a professional technical writer who know how ...

Is it better to start a franchise or a franchisee?

If you answered yes to these questions, then starting a franchise may be the best model for your business. Starting a franchise with your business has many advantages: – Money: You expand using the franchisees capital. – Reduced Risk: Franchisees are responsible for hiring, leases, and unit-opening expenses. The franchisee assumes the risk of ...

Do you need to submit FDD before selling franchises?

The FDD needs to be submitted and approved by various states that regulate franchising prior to even speaking to anyone about your franchise program. Be sure you are trained in all aspects of franchise sales – including the legalities governing these sales – before you start selling franchises.

1. Accreditation

Potential franchisees can certainly feel more confident of success when buying an established franchise, especially when that franchise has been thoroughly vetted by the British Franchise Association.

2. Suitability

Anyone looking at a franchise should consider whether they can see themselves doing the job on a daily basis.

3. Support

Once you’ve narrowed down your selection, take a good look at the support behind the scenes. After all, that’s one of the main benefits of joining a franchise.

4. Funding

Buying a franchise from an established brand can help with funding too. The banks are happy to lend to proven franchises and bfa members are more proven than any other franchise.

5. Returns

Franchises are more likely to provide a solid income and generate faster returns than going it alone. So if you’re looking to replace a salary, you’ll be able to do that quickly with a franchise.

How long does it take for a franchisor to become royalty?

Nicol agrees being properly capitalized is essential. “Typically, a franchisor does not become royalty sufficient until around 75 to 100 open units ,” said Nicol. “That means it takes quite a bit of capital to create and grow a franchise successfully. Sometimes a franchisor will also hold on to their pilot location for too long. Oftentimes, franchisors will need to sell their pilot location and use those funds to focus on the franchisor side. ”

What do franchisors need to do to replicate their business?

In order to create this replicable model, Nicol says first-time franchisors also need to heavily document how they’ve successfully established the concept. “Prospective franchisors need to create a system of procedures and operations that somebody else can follow,” he said. “It may not be polished or totally complete, but they need to document how the business started, how it should be run, how it should be staffed and more.”

What do franchisors need to hire?

From there, emerging franchisors need to hire a good, tenured corporate support team to provide ongoing support and training to all new franchisees. If growth stalls after the first few locations, Nicol recommends taking a hard look at the marketing strategy for bringing in new franchise leads.

What is a franchise disclosure document?

These documents outline the responsibilities of franchise owners, fees and tax responsibilities, financial performance history, rules pertaining to trademarking and much, much more.

How does franchising increase revenue?

With the right plan in place, franchising can increase a company’s revenue through franchise fees and royalty payments paid by the franchisee, as well as expand brand recognition as the franchise reaches new markets and customers.