How to Build a Franchise Business

Franchising is one of the most popular ways to grow a business.

The franchise industry is one that is not well understood by the general public. The business model of franchising is that a franchisor develops a business system that is successful and repeatable, and then sells that system to others via a franchise agreement. Franchise agreements are a specialized form of licensing arrangement that provides franchisors with control over franchisees and gives franchisees the right to use the franchisor's name brand in exchange for an upfront franchise fee and ongoing royalty payments. As a matter of practice, franchisors should trademark their name brand and document their business systems into operations manuals for the benefit of their franchisees.

Instructions

1. Develop several prototypes of your business concept. Franchisees will be much more likely to invest in your system if you can show them that you have had several company-owned prototype businesses up and running. Potential franchisees buy franchises because they provide proven systems and a low-risk way to start a business. The more successful company-owned locations you have, the more appealing your opportunity will look.

2. File for a federal trademark. While you can operate a franchise without a trademark filing, it is not recommended. Franchisees look for proven systems and for good name brands. If you don't own the trademark to your name brand, you risk losing it. Every franchisor should protect his name with a federal trademark.

3. Write an operations manual. Operations manuals show franchisees all of the details of running the franchised business. These manuals are typically several hundred pages long and extremely detailed. These manuals should be given to franchisees on loan and returned if the franchisee leaves the franchise system. All of the content in these manuals should be covered during the franchisee's initial training.

4. Have a franchise attorney or consultant draft a franchise disclosure document (FDD) and franchise agreement. Together these documents will average 130 pages to 140 pages in length. These documents serve three purposes: they aid franchise sales people in educating prospects about the opportunity; they help the franchisor comply with federal regulation; and they serve as the contract between the franchisor and franchisee.

5. Develop a franchise sales process. Every franchisor should have a well-defined sales process that potential franchisees flow through. The sales process should include giving prospects the FDD and franchise agreement as well as holding a "discovery day" where prospects experience "a day in the life of a franchisee." The final step of this process should be a face-to-face interview with the president of the franchise system.

Tips & Warnings

• Consider attending franchise expos as a way to find franchise leads.

References

• Entrepreneur: "Franchise Your Business"

Resources

• FranchiseINC!: "Franchise my Concept"