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So you want to franchise your business…. Part 1 of 4

On Behalf of | Sep 21, 2018 | Business Law

You may be considering franchising your business for a number of reasons. You may want to expand your business but don’t have the capital to open numerous additional locations on your own. You may have people approaching you about buying a franchise because they love your business concept. You may like the idea of the brand and business you have built opening up in locations all over the country. However you come to the point of considering franchising, there are some initial steps to take before you launch into establishing a franchise program.

Here are some initial questions to ask yourself:

· Can your business be replicated? Does it rely on your expertise or can you train and guide others to operate your business in the same manner?

· Typically, you want to have an established track record of operating a profitable business before you consider franchising. Once you do, ask the question of whether the franchise business can be financially successful for both you as the franchisor and the franchisees. Franchisees will be paying royalties, marketing fund contributions and other fees to you that you don’t incur as an independent business. As a franchisor, you will have the expense of establishing and maintaining a staff to support the franchise system.

· Do you have something unique to offer the franchisees to give them a competitive edge against competitive businesses and to ensure that franchisees continue to see the value of remaining part of your franchise system, even after they have learned how to operate the business? It might be proprietary business and marketing methods, unique products or services, proprietary business management software or all of the above.

· Are you willing to give up operating your business to be in the business of franchising? Being a franchisor is a full-time job. You must have others on whom you can rely to operate your core business and you must be willing and prepared to operate a franchise company.

· Do you have the capital available to invest in franchising? You will incur significant costs in establishing the business structures and in complying with franchise laws and regulations in order for you to launch a franchise program. While ultimately, your franchisees will be using their capital to expand the franchise locations, initially you need the capital to cover the costs of launching the franchise company and getting to the position where you can start selling franchises.

If you have given careful consideration to the question of whether franchising is right for you and are still ready to move forward, there are some initial steps that you need to take in preparation for launching a franchise program.

· Begin drafting an operations manual and a training program that you would use to teach new franchisees to operate your business in the manner that you want them to operate to be a positive reflection of your brand. The operations manual should be as detailed as possible and cover both establishing and opening the business and its ongoing operation. The manual will be used in training new franchisees and will also be a reference for franchisees as they operate their franchise business.

· It can be very valuable to engage an experienced franchise consultant. They can help you assess whether your business is franchisable as well as guide you through the process of establishing a new franchise system from a financial, operational and marketing standpoint.

· Talk to people in the franchise industry. Even better, find a mentor who has experience establishing a franchise program.

· Protect your service marks and trademarks. Your brand and the associated trademark or service mark is one of the cornerstones of franchising so you will want to know that you and your franchisees will have the exclusive right to use the mark throughout the country. This is done through filing an application for registration of the mark with the U.S. Patent and Trademark Office. We assist franchisor clients through this process.

· Do some research on the franchise regulatory framework and have an initial conversation with an experienced franchise attorney. While you aren’t yet ready for preparation of the legal documents needed for franchising, you want to have an understanding of the franchise laws and how heavily regulated the franchise business is. We offer an initial complimentary meeting to prospective franchisors to discuss franchising and legal compliance.

Our next blog will address the legal documents that must be prepared in order for you to launch a franchise program.