How To Franchise: Meaning and Method

A successful business with a unique, easily replicable model is the perfect business to franchise, meaning that it can be expanded regionally or even nationally without overtaxing its owner. If you own such a business and have been toying with the idea of franchising it, you should read on. What you learn below will give you some insight into the process.

Franchising your business entails drawing up a license that allows other parties access to your business knowledge, model and trademarks. By granting these parties a franchise, you essentially allow them to provide customers with goods or services under the name of your business. This might worry you somewhat if you do not want to cede control over your business reputation to relative strangers.

Fortunately, though, franchising is not an endeavor that you go into completely blind. If you follow the right steps, you can maximize your chances of creating a successful franchise, meaning you will have much less to worry about than you imagine. As a franchisor, you would have the primary say over who you sold the franchise to and the circumstances under which your franchisees could operate the license. You would be able to vet potential franchisees to see that they met your expectations.

Heading 2: Turning Your Business into a Franchise: Meaning and Method

One of the keys to successful franchising involves starting to think like a franchisor, even before you set into motion the process that will make you one. You must be able to derive from your business experience a model that can be replicated by those who purchase the franchise, meaning you have to be able to explain to your franchisees exactly how your business works and why it works that way. You also have to set down detailed instructions for them to follow.

This is easier said than done. Most business owners are so immersed in their businesses that they cannot describe them in objective terms. They may have a hard time setting out in precise detail all the actions entailed in running their businesses. Many of them are likely to describe their most brilliant business decisions as intuitive decisions. You are likely to find yourself in this situation. If that is the case, you will likely need some time to orient yourself to this new way of thinking about your business.

It is an involving process turning your business into a franchise, meaning that at some point you will have to consult a professional for advice and guidance and to look for franchising resources. One such professional is a franchise consultant. Another one is a franchise lawyer. Both have training and experience specific to franchising and can save you much heartache. As for resources, you should turn to the International Franchise Association for useful information on the legalities of the process and for guidance.

Franchise Licensing

During franchise licensing, the relationship between a franchise owner and a franchisee is established. The franchise license created in this process can take two primary forms. The first one is the one by which the franchisor licenses the franchisee to use the franchise’s name and its trademark.

The second one is more extensive. It licenses the franchisee to use the business format of the franchise. This is a more involved relationship between the franchisee and the franchisor. The franchisor may give the franchisee some financial backing, supply the franchisee with the goods to sell and provide the franchisee with training. These are just some of the characteristics of the license to use the business format. There may be others, including the franchisor’s direct involvement in the process of selecting the locations for the franchise units.

Franchise licensing can take a variety of forms. This is as it should be: Franchisors vary in the kinds of arrangements they are willing to make with their franchisees because their respective businesses come with unique circumstances and needs. Thus, when they undertake franchise licensing, they have to make sure their license documents are worded carefully. The licenses are legally binding; hence, they must be categorical about what they permit.

Franchise licensing establishes responsibilities for franchisors and franchisees alike, including the conditions under which these responsibilities must be met and the details about payment for the rights granted under the license. It is also important for the license to address the steps that the franchisor and franchisee should follow if either or both of them fail to fulfill their responsibilities.

 

The Basics of the Franchise Licensing Process

 

In order to draw up a comprehensive franchise license, a franchisor should consider various factors. These factors have implications for the amount of money he or she will earn from the franchising arrangement, so it is important for them to be thought through carefully. They include clear indications about the limits of the license. For instance, it should be evident whether the franchisee maintains exclusive rights within a particular territory. It should also indicate whether the franchisee has to meet a minimal threshold for sales. The license should also be specific about whose responsibility it is to administer and maintain all intellectual property associated with the franchise.

Preparing the license is bound to cost money if it is done by a professional and if it is done well. Thus, the franchisor needs to decide whether to pay for the franchise licensing process or to somehow recoup the expenses from the franchisee. The license must also include a breakdown of financial obligations and penalties. The licensing fee should be indicated, as should the royalty rates. There should also be provisions for resolving any disputes.

Franchise Law: What Franchisors and Franchisees Should Know

Whether you are interested in becoming a franchisor or a franchisee, it is important for you to understand basic franchise law and to consult a franchise lawyer for assistance with any legal documents.

Franchising has to be carefully regulated. Without such regulation, conflicts are bound to develop between the franchisor and franchisee, effectively undermining the operation of the franchise. However, it is not enough to simply regulate the varied aspects of franchising. The different parties have to make sure they understand all the aspects of franchise law that pertain to their agreement. They must make sure they are getting the best deal possible under the circumstances. After all, they are all in the endeavor to make a profit. It would be naïve and potentially financially disastrous for each party to assume that the other party’s lawyer had its best interests in mind.

 

Franchise Law and the Franchising Agreement

 

“Location” is just one aspect of franchising that is governed by franchise law. For a franchising agreement to be written up, a number of decisions have to be made regarding the location of a given franchise unit. Some of these will be determined by the law while others will be determined by the parties to the agreement. For instance, it has to be decided whether the franchisor or the franchisee will be responsible for locating the unit’s site. It also has to be determined whether to grant the franchisee the right to move the franchise unit if the building hosting it is condemned, if the business does not thrive as expected or if the lease expires.

Often, buying a franchise grants the franchisee exclusive rights within the territory in which his or her franchise unit is located. Typically, the franchisor is not allowed to sell a franchise unit to a second franchisee within the same territory as long as the first franchisee is still operating there. The precise rules governing such details depend on prevailing franchise law. However there is also some room for flexibility, giving the franchisor and franchisee the opportunity to negotiate over some of the features of the agreement.

Another important issue that will come up during franchising is trademark. A savvy franchisor will register his or her trademark long before trying to sell the first franchise unit. In so doing, the franchisor can avoid endless legal battles with other business entities that subsequently try to claim ownership of that trademark. The franchising agreement between the franchisor and the franchisee should cover trademark-related issues in detail. It should describe the trademark protections in place. It should also describe the steps that the franchiser and franchisee will take in the event of legal conflict with a third party concerning the trademark.

Credible Franchise Information: A Priority for Prospective Franchisees

If you are planning to become a franchisee, you will benefit greatly from having access to credible franchise information. This can constitute general information about franchising or details about specific franchises that you might want to buy into.

Starting a business of your own and operating it successfully is a gargantuan task. Apart from the financial demands and the amount of time that you have to put into the task, you have to take responsibility for accounting, operations, human resources, customer service, meeting legal requirements, and marketing and selling goods or services. This can be overwhelming if you have nobody but yourself to rely upon.

Buying a franchise is significantly different. You have to worry about the same issues, but on a smaller scale. Somebody else, namely the franchisor, will already have “invented the wheel” and perfected it. By choosing to follow in his or her footsteps, you will set aside the need to start from scratch. Instead, you will get the opportunity to build on the foundation that he or she has already established. A comprehensive review of detailed franchise information will give you clear indications of the role you will play.

Clearly, buying a franchise is less risky than establishing a business on your own. However, it brings with it its own set of responsibilities and requirements, all of which you have to meet. Running a franchise is best done from an informed position.  Hence, you have to make an effort to read and analyze as much franchise information as you can before making any financial commitments to a franchisor.

 

Using Franchise Information to Select an Appropriate Franchise

 

Choosing a franchise is a process to which you must devote plenty of time. The internet can be a valuable resource if you are searching for information about specific franchises. You can actually find websites devoted to franchise directories. Clicking on individual entries in these directories will give you access to detailed franchise information, including eligibility requirements, financial expectations and instructions for getting in touch with the franchisors.

You should select franchises which fit in the categories that appeal to you the most. For instance, a toy store franchise can be an excellent choice if you enjoy working with children. Make an effort to find out what running a given franchise would actually entail. An idea might seem appealing in theory, but the fact of having to operate the franchise for years could turn it into a nightmare. You should also make sure that operating a given franchise will not infringe on any of your ethical principles or values.

Franchise Documents: Drawing Up a Great Franchise Application

The franchise application is one of many franchise documents that must be thought through carefully. It influences the franchisor in selecting the best franchisees from what is often a wide pool of applicants. Hence, it is important for the application to elicit as much relevant information as is possible from each applicant.

One way to get a good sense of what a franchise application should look like is to buy a franchise package online. This will include a wide variety of franchise documents’ templates, along with suggestions for modifying them or personalizing them. Another way to get a glimpse at franchise applications is to simply perform a Google search for “franchise application.” The results will include actual franchise documents of this type as they appear on the websites of the corresponding franchise companies.

You should print out copies of those franchise applications associated with well-known and highly successful franchise companies. These are likely to have been drawn up by established professionals. Hence, they are bound to be top-notch documents. You should also print out the ones associated with the franchise companies that are most similar to the one you intend to form. If you want to franchise your coffee shop, then look up the franchise applications of cafes like Gimme! Coffee. Looking at other franchise companies’ franchise applications in this way will give you a sense of the different possibilities out there and get you thinking about why one variation of an application question might be more effective than another. This is a useful way of preparing to draw up your own franchise documents.

 

Basing Franchise Documents on Your Vision of the Ideal Franchisee

 

As you prepare franchise applications and other franchise documents for your prospective franchisees, it is important for you to envision the type of applicant that would make the most ideal franchisee for your franchise company. Your first instinct might be that a franchisee very much like you in character and behavior would be perfect. But this is highly unlikely to be true. Remember that the qualities that enabled you to found and run a successful business included innovation, creativity, the readiness to adapt to different circumstances and the willingness to think outside the box. These are not necessarily the qualities that would make a good franchisee. Keep in mind that franchisees must be good at following the plans and instructions that you have formulated for the franchise. Hence, you would do well to search for prospective franchisees who were good at sticking to established plans, but capable of working autonomously.