How Do I Start a Franchise? Keep in mind these requirements when you consider making the move from business owner to franchisor.
By Jeff Elgin
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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 .
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.
