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Cloning Around

You've read about the companies in our Franchise 500. Now find out how to join them by franchising your own business.
January 1, 2004
URL: http://www.entrepreneur.com/article/66030

You've started a successful business, and people want to pay you to clone your success. Now what?

One piece of common-sense advice I review with clients considering franchising is: Franchising is a unique business method that requires its own knowledge base and its own set of skills. If you are in, say, the hotel or auto-repair business now, when you launch into franchising, you'll be in that business and in the franchising business, too. A successful franchise needs:

Step by Step
A few documents and legal steps are absolutely necessary if you lead your business down the path of offering franchises.

1. Create an operations manual. This will be your system's bible. It's used to train your franchisees and give them operational guidance as they establish their units.

2. Secure your trademark. No law requires it, but if you have not done so already, you may want to apply for federal registration of your trademark.

3. Prepare audited financial statements. You need an audit of your most recent three years, or your most recent year if you have not been audited before. You might also need recent unaudited statements since the end of your fiscal year.

4. Write a Uniform Franchise Offering Circular (UFOC). Federal law and several states require you to give a complete and current UFOC to a prospective franchisee at the initial meeting to discuss the sale or potential sale of a franchise, or 10 business days before the prospect pays or signs a binding franchise agreement.

5. Develop a franchise agreement. This governs the franchise relationship, and it had better be tight. It must be included in the UFOC and signed by the franchisee and franchisor when a franchise is granted.

6. Comply with state franchise law. Some states require you to register before making offers, while others require you to file an exemption under a state business opportunity law. Under many state franchise laws, you are restricted from advertising the franchise offer prior to registration.

7. Get a legal review. Once you've found an experienced franchise attorney, have him or her provide a detailed review of the franchise agreement and the UFOC. Your attorney will help you evaluate whether this is a document you can commit to and whether you should include specific provisions.


Andrew A. Caffey is a franchise attorney in the Washington, DC, area and is author of Franchises & Business Opportunities.