Franchising continues to gain popularity as a method for expansion for successful retail businesses. With the current economic forecasts, I would expect this trend to continue in 2012.
When making the transition to franchising, it is important for business owners to keep in mind that the franchise operation will be a new, entirely different business operation in and of itself. Franchising is highly regulated on the legal side, and the franchise “industry” itself has its own sets of ins and outs. With these foundations in mind, here are five tips for businesses considering franchising in 2012:
Tip 1: Start Writing Things Down
Franchising is all about systems—having them, teaching them, enforcing them and adapting them to changes in your industry over time. In working through preparing the Franchise Disclosure Document and Operations Manual (yes, you will need both if you are going to be franchising), you will need to be able to identify and describe the concrete standards, specifications, guidelines, plans, etc. that make your concept what it is. What’s more, you will need to be able to teach your franchisees (and your sales staff if you are going to hire a sales staff) how to employ all of these things to get new outlets up and running and maintain them over time. In preparing to franchise, it is critical to make sure that everyone within your organization is prepared to send the same messages when it comes to enforcing your system standards.
Tip 2: Get Started Early
Converting practices into standards and guidelines takes time, and prospective franchisors should be prepared to spend a significant amount of time (if they haven’t already) putting together the documentation and systems necessary to launch a franchise system. Beyond that, it takes time to learn about the business of franchising in general. It also takes a good amount of time to do things like…
Tip 3: Make Sure Your Trademarks are Protected
Next to system standards, a valuable trademark is perhaps the most fundamental component of a franchise system. If you’ve already registered your principal trademark(s) with the USPTO, then you’re ahead of the game. If you haven’t, then it is time to do so now. Your franchisees will be paying for the right to associate with your brands, and they won’t be too happy if it turns out that someone else has obtained trademark rights that prevent you from asserting exclusive control. You, too, may be none too pleased if it turns out that your East Coast-based concept is prevented from expanding in California because a mom-and-pop chain is already operating there under a similar trademark.
Along with obtaining registered trademark rights, franchisors-to-be should also get started with a comprehensive trademark monitoring service to keep tabs on their brands.
Tip 4: Hire an Experienced Franchise Consultant and Franchise Lawyer
Experience is the best teacher, and this certainly holds true in franchising. Franchise consultants experienced in helping businesses make the transition from solo operator to franchise system can be invaluable to getting new ventures started out on the right track. Likewise, experienced franchise attorneys know what needs to be included in the Franchise Disclosure Document, they know the latest issues affecting the enforceability of franchise agreements, and they know how the various state franchise regulators will handle franchise registration applications.
Tip 5: Get Your Financial House in Order
Finally, one of the biggest headaches for many new franchisors is complying with the obligation to provide audited financial statements in the Franchise Disclosure Document. While the federal franchise law permits a phase-in approach to providing the audited disclosures, some state laws require the full audit from the very beginning. In addition, with the growing number of franchises out there competing for candidates, a strong financial statement can help set you apart from the crowd—especially these days. Plus, remember, you are going to be asking franchisees to invest heavily in your concept, and you are going to be qualifying candidates based on their financial condition. They will want to see that you are poised for the long haul as well.
Jeff Fabian is a franchise and trademark lawyer who represents both start-up and active franchisors. He can be reached at 866.545.7859, or online at www.fabianlegal.com. You can also follow Jeff on Twitter @jsfabian.
This article is provided for informational purposes only, and does not constitute legal advice.