A Checklist for Franchising your Business
Companies have been franchising for more than 50 years now, with widely varying degrees of success. Make no mistake: franchising an existing business is a major undertaking. There are all kinds of details to consider, including geographical and operational issues, the question of competitors, the level of financial investment you'll require of your franchisees, and much more.
Services like Acurate Franchising can
guide you through each stage, but you'll want to get some understanding of the
process first; hence the checklist below.
The Checklist for Franchising a Business
We thought it might be useful to break the process down into a to-do list for the prospective franchisor. This isn't meant to be an all-inclusive guide by any means, but the list below should give you a solid idea of what lies ahead.
- Legalities - Prepare a standard disclosure document. At minimum, the FTC requires every franchise to have a Franchise Disclosure Document (FDD) before offering franchises for sale in the U.S. Some states have additional registration requirements and peculiarities of their own to consider. Put it this way: expect to think about your business inside and out, and have literally hundreds of business issues spelled out in print.
- Financials - Prepare audited financial statements. This is actually a required part of the FDD, so until your statements are audited, you won't be able to legally proceed with franchising. You'll need an accountant with experience in producing these audited statements.
- Systems - This is the heart and soul of any successful franchise company. Every aspect of your business must be developed to the point where it can be easily described, standardized, and replicated. Then every detail must be documented.
- Training - You will need a training program, plus qualified people to provide the training. The better your training program, the more successful your new franchisees will be.
- Marketing - Formalize your marketing plan. You'll need two sales systems: one for your franchisees to follow that will drive customers into their units and one for you to use to recruit those new franchisees and generate revenue (from franchise fees and, hopefully, ongoing royalties) as a franchisor. Prepare marketing materials that can be easily understood and duplicated.
- Quality Control - Create checklists, policies, procedures and tactics to ensure your systems are uniformly enforced.
- Attitude - This is perhaps the most important item of all. You must be focused, positive, flexible, and dynamic -- all at once and all at the same time. In practice this means expecting a challenge and stepping up to overcome any obstacles in your way.
Services to Help you Franchise your Business
While creating a franchise concept is a complicated and all-consuming process, the rewards -- financial, personal, and otherwise -- can be enormous and compound favorably through generations (just ask anyone whose parents or grandparents started a successful franchise system)!
Fortunately, you don't have to go it alone. The most successful franchisors recognize their areas of knowledge and strength as well as the areas in which they would be best served utilizing the services of domain experts, such as franchise lawyers, accountants, and consultants.
Franchise Mergers and Acquisitions
There are several reasons for franchises to consider acquiring another franchise. It could give them the opportunity to add new products without the risk or cost of developing these offerings internally. It could help the buyer add new markets, geographically or demographically speaking, with an already strong existing brand. Acquiring a franchise supplier or distributor could build efficiency through vertical integration. Acquisitions can also help a franchise develop sufficient scale to compete with a larger rival more effectively.
Before Buying a Franchise Identify Your TRUE Investment
Your approach as a potential franchise buyer is to identify the real investment dollars you’ll need to get the franchise to profitability. The initial source of this information is Item 7 in the FDD. Item 7 is a schedule that details the estimated investment in the franchise. This schedule includes the cost of various items, including: the initial franchise fee, training related expenses, rent, insurance, professional fees for legal and accounting services, supplies, equipment, licenses and permits and additional working capital. Depending upon the specific franchise, there may be added categories. When reviewing the Item 7 schedule it’s important to know that franchisors are not required to list every type of fee or expense that might be part of the investment in the franchise but rather the likely investment needed to start the franchise. As you work to establish your investment number keep in mind the words “estimated” and “typical.” Item 7 is a guide, and as such, you should use this information accordingly.
9 Keys You Need to Know to Buy a Franchise Through the Eyes of an Expert
Assume that I’ve already identified a franchise opportunity that fits my personal, business and financial profile and my application has been approved.