how to structure a franchise

How to Structure a Successful Franchise System

• Trust & Communication The structure of a successful franchise begins with trust and communication. ...
• Support A successfully structured franchise occurs when the franchisor is providing the necessary resources and support to its franchisees. ...
• Structure Rhino7 knows the foundation of a successfully structured franchise system is built on trust, communication, and support. ...
• No Franchisee is Left Behind ...

Full Answer

How to choose the right franchise structure?

• What speed of growth is required to meet your goals?
• What is your return at the unit level?
• How much support can you provide to your franchisees?
• Does your business lend itself to passive ownership?
• Are you able to cluster units effectively?
• How fragmented is the competitive market?
• What is the degree of competition for your targeted franchisee?

More items...

What are the basics of a franchise?

• The franchisee pays fees to the franchisor. ...
• The franchisor must have significant control over operations. ...
• While the franchisee may own a franchise, the services and products provided by the business are associated with the franchisor’s trademark.

What is the legal structure of a franchise?

The most common legal structure options are S-corporations, C-corporations, sole proprietorships, general partnerships and limited liability companies. S-corps are becoming more popular in recent years among franchisees due to the tax benefits afforded to smaller businesses with fewer stakeholders.

What are franchise relationship structures?

Understanding Franchise Relationship Structures. Franchising, at its core, is a way for a company to expand and distribute its products or services. In “Traditional Franchising,” product manufacturers use a downstream distribution system to get their products to market. In “Business Format Franchising,” companies sell the rights to use ...

What is the best organizational structure for a franchise?

Individual franchising offers the greatest control over your franchise operations, as well as which franchisees you'll allow to open additional franchises, as you can predicate it on their performance with their existing location(s).

What are the 4 types of franchising?

The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.

What are the five 5 strategic design components of a franchise business?

The 5 Elements of a Successful FranchisePowerful business systems.Serious brand power.Innovation.Powerful franchisee training.Wealthy franchisees.

What are the basic requirements of the franchise Rule?

The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.

How does franchise work?

In franchising, a franchise owner partners with a corporate brand to open a business under the brand's umbrella. The franchisee owns and operates that location using the franchisor's brand name, logo, products, services and other assets.

What makes a good franchise model?

What makes a good franchise is an agile yet strong and supportive infrastructure. All franchisees need initial training when they start. Even if they have experience, they'll still need to learn the ropes of your operating model. Providing ongoing training ensures standards are maintained and benchmarks are met.

What are the 3 types of franchises?

There are three main types of franchise opportunities available, these are: Business format franchises. Product franchises, or Single operator franchises. Manufacturing franchises.

What are the disadvantages of franchising?

Buying a franchise means entering into a formal agreement with your franchisor. Franchise agreements dictate how you run the business, so there may be little room for creativity. There are usually restrictions on where you operate, the products you sell and the suppliers you use.

What are the 3 basic types of franchising?

There are three main types of franchise opportunities available, these are: Business format franchises. Product franchises, or Single operator franchises. Manufacturing franchises.

What are the 2 types of franchise?

There are basically two types of franchises. There's Product Distribution Franchising (or what's really called traditional franchising), and there's Business Format Franchising, which most people recognize as franchising.

What is the most common type of franchise?

The most common type of franchise relationship is known as a business format franchise which provides an entire operating system for the franchise business to its franchisees. Every aspect of the franchise is generally overseen by the franchisor from site selection and training to marketing and operational standards.

What are the two 2 types of franchising arrangements?

When it comes to structuring franchise arrangements, there are typically three different types of franchisor and franchisee agreements.Single-Unit Franchise Agreement. ... Area Development Agreement. ... Master Franchise Agreement.

Why are master franchising and area representative agreements not recommended for emerging franchisors?

Because master franchising and area representative agreements are highly complex and require a deep understanding of the inner workings of the franchise industry, especially from a legal perspective, these structures are not recommended for emerging franchisors. It's best for new franchisors to start at the individual level and introduce additional structures as the company grows and matures.

What is master franchise?

Master franchising , a structure most common in international markets, is an agreement in which the master franchisee is granted exclusive rights from the franchisor to sell individual franchises, often in a protected territory. Through this structure, the master franchisee collects a portion of the franchise fee in return for providing ongoing support to the individual franchisees, creating a responsibility buffer for the franchisor whose contractual obligations are only with the master franchisee.

What makes master franchising and area representative agreements particularly attractive?

What makes master franchising and area representative agreements particularly attractive is the growth acceleration they represent. But, only mature and sophisticated franchise brands should employ these structures, as they come with some significant disadvantages like reduced quality control, shared-fee structures and third-party training.

How does an area development franchise work?

In this franchise structure, the area developer signs a single franchise agreement for the rights to a predefined number of individual locations, which must be opened within a fixed amount of time. For instance, an area developer may sign a 10-unit contract for Dallas, Texas with the obligation that all 10 units must be open in no more than five years. The details of these agreements often vary from franchise to franchise, but all will have three predefined elements: number of units, territory and timeline.

What is the benefit of franchising?

The benefit to the franchisor is the conversion franchisee comes into the system with established clientele and experience that startup operators often don’t have. That existing experience and infrastructure typically mean they will require less initial support and training, though that’s not always a guarantee.

What are the variables that you may encounter during the structuring phase?

Some variables you may encounter during the structuring phase include things like: Who is your target franchisee? What kind of support will they require? What sort of staffing demands will their operation produce? Further, the structure you choose will also influence your costs as you build your organization. So, be sure to allow yourself time for due diligence and thorough financial modeling.

What is Forbes Coaches Council?

Forbes Coaches Council is an invitation-only community for leading business and career coaches. Do I qualify?

What are the main franchise structure types?

There is no single typical franchise structure used by every franchise system. There are four which are the most common:

How do I choose the right franchise structure for me?

Selecting the right kind of franchise structure for you is often a matter of assessing your skills and matching them with the available franchise opportunities.

The franchise structure which fits your skills – your options

Need to know more about the type of franchise structure that would be the best match for your talents?

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

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

Does My FDD Have to Be Registered or Filed?

The answer depends on where you will be offering and selling franchises. At the federal level, the FDD is not registered or filed with a government agency. Although your FDD must comply with federal law and the Federal Franchise Rule, compliance is self-regulating, which means that it’s up to you and your franchise lawyer to make sure that your FDD is properly prepared and issued. At the state level, in the franchise registration states, your FDD must be registered with the designated state regulator before you can offer or sell a franchise in that state. In the franchise filing states, you must make certain filings with the designated state regulator before offering or selling a franchise in those states. In all other states, you may offer and sell franchises as long as your FDD is current and in compliance with federal law.

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.

Do I Have to Work with a Franchise Lawyer?

If you are going to franchise the right way, you need to work with a lawyer who specializes in franchising and who is experienced in working with new and emerging franchisors like you.

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.