Q:
I've got a great business that I think would be perfect for
franchising. How do I get started as a franchise company? What
kinds of advisors will I need and where do I find them? Is there a
good source of information for me to start with?
A:
Congratulations on building a successful business. It is exciting
that you are considering using franchising as a method of expanding
your brand and operations. You have some great questions so
let's discuss each in turn.
First of all, one of the best starting points for researching
this idea is the International Franchise Association (the IFA). The
IFA is the industry trade association for franchising and has a
host of resources that you can access to get started in this
process. You can find the IFA and start your search by going to
their Web
site.
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Starting a franchise company is not an easy or inexpensive
process. There are a number of requirements you will have to meet
and a few other things that, though not legally required, are also
essential. These requirements include:
- Legal. You will be required to prepare a standard
disclosure document for your franchise operation. This document,
called the Uniform Franchise Offering Circular (UFOC) is required
of all companies, by the Federal Trade Commission, if they want to
offer franchises for sale anywhere in the United States. In
addition, there are a number of individual states that have
registration requirements you must meet if you are going to offer
franchises in those states. You will need an effective and
experienced franchise attorney to help you meet these legal
requirements correctly. As with any advisor, make sure to check the
experience and references of attorneys when making this
selection.
- Accounting. You are going to need to prepare audited
financial statements for the franchise company. This is actually
one of the disclosure requirements under the legal section above so
you won't be able to complete legal until you have your
statements audited. You'll have to decide if you want to set up
another company to franchise your concept or if you want to use the
existing business entity you are operating as your franchise
company. You'll need an experienced accountant to produce these
audited statements and to advise you on the structure of your
business enterprise. Again, make sure you are getting someone
experienced in operating in the franchise arena and check
references prior to deciding on this person.
- Systems. The heart and soul of any successful franchise
company is systems. You will need to develop and completely
document the systems that a franchisee will use to run their
business successfully. You will need to develop a training program
that will teach a new franchisee whatever they need to know to
become a successful operator. You will need to formalize the
marketing plans that a new franchisee will use to drive customers
into their new unit. You will also need to design a sales system
that you can use to recruit new franchisees into your franchise
company. There's a mountain of work getting all your systems
set up and ready to go. You can hire outside consultants to assist
with all this work but if you do, make sure you check references
very carefully since there is a wide variance in terms of what
these folks do and what they charge for it.
- Mindset. One of the most important things you need to do
in order to be a successful franchisor is to have the right focus
and attitude. In your existing business, you're the boss, you
have employees and they probably do what you tell them to do
without much resistance. Franchisees are quite different from
employees and you need to make sure you don't treat them as if
they were employees. Successful franchisors use a lot of persuasion
to get the franchisees to do what they want rather than issuing
orders. It's not as fast or efficient but you'll find that
you meet a lot of resistance from franchisees if you don't do
it this way. I don't know about specific advisors related to
this topic but there are numerous industry meetings and
opportunities for you to interact with other franchisors and you
should take advantage of all these as a learning experience.
The final thought I'll leave you with is a word of caution.
Most honest advisors in the franchise business will tell you that
you'll need at least $500,000 to $1,000,000 in initial capital
to even think about starting a franchise company. You will probably
work harder than you ever have for at least 2-3 years before you
even start to make any money on your franchise operations, and it
could easily be 3-5 years.
The rewards and satisfaction of building a successful franchise
company are incredible but so is the price that you'll pay to
reach this goal. Make sure that you want to pay the price before
you start this process and then go forward with realistic
expectations and you should do fine.
Jeff Elgin has almost 20 years of experience in franchising,
both as a franchisee and senior franchise company executive. He is
currently the CEO of FranChoice
Inc., a company that provides free consulting to consumers
looking for a franchise that best matches their needs. He can be
reached at jelgin@FranChoice.com.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.