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Once you begin expanding your business by using investors you must be careful that you're not crossing the border into franchise territory. The definition of a franchise is an authorization by a company to a third party enabling them to carry out specified commercial activities, use their trademark, and follow their business model.  In exchange for that authorization, the third party compensates the company with fees and royalties. If you are intertwined in a business partnership that meets this criterion, you may accidentally have started franchising your business.

While there are many benefits to franchising your business, an accidental franchise could get you into deep water.  If you are providing an investor with a 'license' to use your business model and are requiring training and providing support, then technically you are a franchise.  There are legal repercussions to operating like a franchise and you could be subject to hefty fines.  Franchisees have rights of their own that could allow them to revoke their contracts, as well as the right to take further legal proceeding. You may even be culpable of a felony, in some states.

If you're concerned that you may be crossing into franchise territory and want to make sure you're legally in the clear, follow these simple steps:

  1. Control is in the hands of the business owner or licensee.
  2. There are no limitations on marketing and distribution of the products/services.
  3. Training is limited to the knowledge of the product/service.

If you feel that you have crossed into franchise territory, then you might want to contact your attorney or give us a call.  We can provide you with a litmus test to help you assess whether or not you are a franchise.

 

Most people focus on overcoming their weaknesses.  But shouldn't we focus on maximizing our personal strengths?  An introvert will probably never become a successful salesperson.  Conversely, an extrovert probably wouldn't enjoy a desk job surrounded by four walls.  So why not give the introvert the desk job and the extrovert the sales position?

Many companies pour dollars into lifting-up losing products when they should be focusing on the winning products.  Successful companies focus on maximizing their strengths and the same is true for franchise systems.  When franchisors come to us with concerns about poor performing franchisees,  we advice them to, "Find what they do best and hire out the rest."

  • Not everyone is proficient in bookkeeping so don't let your franchisee waste time on becoming a QuickBooks expert.  Advice: Hire a bookkeeper, so the franchisee can spend the time saved marketing their business in the field.
  • Most franchise owners are busy with daily operations and do not have the time nor the know-how to update engaging social media.  Advice: Hire a social media expert or offer the position to an employee.
  • When the revenues go down, the franchisee holds back advertising dollars.  Advice: Advertising spend should be consistent and localized.  Digital advertising should be left to the experts and not the franchisee (unless the franchisee held a digital marketing position, previously.)  Hire a local digital agency to perform this function.

As a franchisor, your role is to be the coach and supporter of your franchisees.  By identifying franchisee personal strengths and weaknesses prior to even opening a franchise, allows you the opportunity to tailor training to maximize franchisee's success.  It's a win-win for both parties.

Franchise consultants help expand and promote the success of your business. This means that a consultant’s role takes a number of forms depending on the state of the business. In general, a franchise consultant aids in the development and growth of a franchise system while being your guide.  

The main role of a franchise consultant is to help you navigate the world of franchising. With all the rules and regulations, franchising can be a confusing and daunting process. Not to mention, if done incorrectly, a business can face legal issues. Think of a franchise consultant almost as your sherpa, guiding your business down the right path.

What is the role of a Franchise Consultant?

Firstly, a franchise consultant develops the franchise business model.  This is a reflection of your current business yet documented so it can be duplicated by a franchisee.  This includes developing Operation Manuals, Franchisee Training and Support, and on-the-job training for employees.

Secondly, franchise consultants work to ensure that you are protected legally and comply with federal and state regulations.  Often times, this entails working with attorneys to register your trademark and ensure your Franchise Disclosure Document (FDD) meet the FTC standards.   FDDs are given to potential franchisees to help educate them about your franchise program and includes all the necessary legal documents and financial statements along with a detailed report of your business’ operations and procedures.

Lastly, a franchise consultant should not “take over” or try to drastically change your business. Rather, a franchise consultant works to develop a franchisable model that is attractive to potential franchisees while still keeping the integrity and core values of your company.

Now, that you know the value of a “franchise consultant,”  how do you determine if you need one? Well, first you need to assess whether or not franchising is right for you.  Here are some questions to ask yourself.

  • Is my business unique?
  • Is my business financially successful?
  • Can my business be duplicated in any market?
  • Am I ready to take on a new role; the franchisee trainer and coach?

If you would like a more in-depth article about whether or not franchising is right for you, then click here.

For more information regarding franchising your business, sign up for our no obligation, 30-minute strategy session. 


Are you thinking of franchising your business?

Your business is your baby and it is growing.  You've decided that franchising your business is the best approach to expanding your brand, but you're not sure how to get there and what you need.  So how can you find the right company to help you move forward to reaching your goals?  Well, you are actually looking for a franchise development company like ours.

There are many firms like ours throughout the U.S. some good and some not so good.  When interviewing franchise development companies, we recommend that you ask these following question

1. Where is your office located?  If the consultant is working from home, then they are not a legitimate business.  A stable franchise development company has employees and a physical address.

2. How do you charge for your services?  Some companies have an a la carte approach to pricing, other companies charge by the project.  The most important question to ask every prospective development firm is, "What exactly are the deliverables?"  A complete franchise system will have franchisee training and support programs, all the necessary legal documentation, on-the-job training for employees, marketing plans and strategies for franchise sales, and franchisee relationship management.  Ask to see their work.  As they say, "The proof is in the pudding."

3.  Does your company focus on franchise development or does it sell franchises?  There many different types of services in the franchise industry.  There are franchise brokers, franchise consultants and franchise advisors, who help people find the right type of franchise to purchase.  If you come across a company that is more into the selling of franchises, then that might not be a good fit for you.   You really need a franchise developer that is committed to building you a complete, comprehensive franchise system.

4. Are franchise documents prepared in-house or outsourced?  One of the most important legal documents that you will need is a Franchise Disclosure Document that complies with the Federal Trade Commission.  Some companies take the easy route and use a template, a one-size-fits-all approach, then charge you an arm and a leg.  Every business is unique so therefore your FDD must reflect your business model.

5. How many franchise systems have you built?  Ask to speak to their existing and past clients.  Invest some time visiting the actual franchise businesses.  Are the franchisees satisfied and do they feel that they were adequately trained to operate their franchise.  You will be amazed at how much information you can receive from franchisees.

As with any business relationship, you need to trust the company that you are working with.  Ask for references from their vendor list.  The way someone treats their vendors is a pretty good indicator of their character.

We take a customized approach to franchising your business.  The process is not easy, but we try to make it fun, affordable and prosperous.

 

What Are Key Processes and How Do They Relate to a Franchise Business?

When you franchise your business, the power comes in the creation of repeatable processes that are replicated in the same manner across the franchise system.  When we speak of Key Processes we refer to a collection of related, structured activities or tasks that have a significant impact on the overall success of your business.  The father of Total Quality Management, Dr. Joseph M. Juran, defines a process as, “a systematic series of actions directed at the achievement of a goal.”

Key Processes can cover a wide array of activities and all Key Processes are inextricably tied to the delivery of your company’s end product or service. Key Processes are vitally important to the success of a business; they reflect those business practices that ensure an organization retains its competitive edge. When you franchise your business, the Key Processes become the backbone by which the franchise system training program is developed.

There is almost an infinite number of processes in the business world today.  Each business has established a set of practices that they use to ‘manage the business’ and achieve a positive and hopefully repeatable outcome.  The nature of your key processes will naturally depend on the type of business you operate and the systems you have developed to manage daily operations. 

Key Processes for Franchise Systems

For a more simplistic approach to building Key Processes for franchise systems, we use these following categories:

  • Universal Processes - These processes cut across all hierarchies within an organization and must be adhered to achieve a consistent output or outcome.  An example of a Universal Process is customer service.
  • Management Processes - These are business-wide processes that are fundamental to how an organization is managed.  For example, purchasing, inventory management, managing the books, etc.
  • Operational Processes - These are processes that represent the day to day activities that your organization performs to accomplish your goals and mission.  Customer intake process, opening & closing procedures, the front of house and back of house procedures for restaurants are good examples of Operational Processes.

Most organizations that we work with have a good understanding of their Key Processes and how their processes impact their business.  In many cases, the processes are ingrained within the institutional memory of the organization and the steps of these processes are taught through a combination of informal instruction and hands-on involvement.  However, in very few cases are these processes actually written down and if so, they are often nothing more than a pile of notes, instruction sheets and articles pertaining to the topics at hand.

While this approach may work well for the individual business, it frankly is not good enough for a franchise system.  When franchising your business, you need to put yourself in the shoes of a franchisee.  A franchisee expects more from a franchisor, after all, they will have paid a significant sum to learn your ‘secrets’; a franchise owner expects to see a formal curriculum that is backed by knowledgeable people.

In an effective franchise system, the training on processes is codified and includes formal instructions and curriculum.  Best in class franchise systems will also provide structured On-the-Job Training curriculum with an evaluation of comprehensive and competence.  

We refer to the difference between how an organization codifies their processes currently versus what will be expected by a franchisee as the Process Gap.  This is the Gap we fill; it is the problem we are uniquely geared to solve for our clients who are looking to build a responsible and comprehensive franchise.

We tackle the hard job of making the small, new franchise entrant appear as they have been in business for decades.  We help level the playing field by identifying, developing, and documenting an organization's’ key processes so that franchisees can be effectively trained in the company’s approach and methods.  This is the essence of what we do and it makes a difference for the emerging franchise system and their franchisees.

Franchise or Organic Growth?

Colonel Sanders said this, "I could see it wasn't going to be easy. I couldn't give a franchise to any old greasy spoon. And I knew the chicken had to be cooked the way I told them to cook it if it was going to be as popular as it could be."

Obviously, the Colonel figured it out.  There are nearly 4500 franchise units in the US.

Yet, should you franchise your business?  There two paths to add new locations beyond your existing store. The first is by organically growing where you expand by building new locations using your time, money and energy.  The next option is by developing a franchise system.  When you franchise your business you sell the rights to use your business name, logo, products/services, trademarks, and business model to an owner-operator, also known as a franchisee.  Franchisees use their capital to purchase these rights and build their own storefronts.

There 7 good reasons why many businesses prefer to franchise as a means for growth.  The primary reason is the opportunity to expand rapidly without investing a lot of capital.  Unit buildouts and grand openings are incurred by the franchisee.  And, since the design of the store matches that of your original store, the buildout time is less and so is the expense.  Here are some other good reasons why franchising is the best way to grow your business.

  • Staffing is performed by the franchisee -- Recruiting, hiring and training practices of employees are designed by corporate but executed by the franchisee.
  • Greater brand recognition -- Rapid growth allows for greater brand recognition.
  • Higher unit sales potential – Franchisees have vested interest to succeed and compete in the marketplace.
  • Group buying power – With increased buying power within the franchise system, comes leveraged contracts
  • Access to better talent – Most franchisees are successful professionals with a high business acumen, highly competitive and driven by $$$’s.
  • Promotes the ‘American Dream’ – Everyone should have the opportunity to achieve success and prosperity. By purchasing a ‘business in a box’ a savvy person can achieve their dream of owning their own destiny.

Click here to receive your free whitepaper on Franchising vs. Organic Growth.

If you are an entrepreneur thinking about expanding your business, then we can help.  Not every business can be a franchise.  We can help you assess which path is best for you.

Costs in Franchising

Understanding the costs in franchising is an important step in evaluating the right path when selecting a franchise development team.  There are many phases when it comes to franchise development and no two companies are the same.  Some offer only the necessary legal documents and others provide full-service from development to sales.  To truly compare franchise development companies, you must insist on a detailed proposal from each firm, so you know exactly what you are getting for your dollars.

You also need to take into account the type of business you own.  Full-service, sit down restaurants are the most expensive businesses to franchise.  There are a lot of moving parts and costs involved with restaurants; inventory, recipes, point-of-sales systems, kitchen equipment, cleaning procedures, back-of-house and front-of-house policies, etc.  If you are in the service industry where a potential franchisee can work from home, then the cost to franchise this business is much less.  When looking at pricing a franchise system, we take into account the all the moving parts and costs involved with your business.

Prior to even talking about the price though, we make sure your business is franchisable.  Not every business model can be franchised.  We have a vested interest in your success and we want to see your model succeed.  We take the time to learn about your business and get to know you, too.

Our goal is to build complete, responsible franchise systems that become enduring brands where all parties benefit; you, your franchisees, your vendors and most importantly your customers.

Since its inception, you have been involved in the day-to-day management and marketing of your business.  It's your baby and we understand.
Building a franchise system is no walk in the park.  There are many hours involved meeting with your franchise consultant, discussing operational procedures, meeting vendors, and reviewing operational materials.  All this happens before you sell your first franchise.  Once you begin selling franchises, you will be working with franchisees on site selection, buildout of their store, plus delivering training and support programs.
The point we want to make is, now is the time to begin the search for your replacement of the day-to-day management of your business.  It will always be your "baby", but you may not be able to devote the hours as you once did.  Your franchise is your second baby!
The most important aspect of growing your business nationwide is trademarking your name.  If you are currently operating a successful brand locally as opposed to nationally, other businesses may be able to establish themselves in a different area of the country using your brand name.
Registering a domain name in Go Daddy does not prevent other businesses from using your brand name. Under the Fair Trading Act of 1986, the business's reputation in the market place determines the extent to which the business will be able to enforce their rights.  To avoid costly legal battles the best protection is by registering your brand as a trademark under the Trade Marks Act of 2002.
If you do not have a Trademark attorney, we would be happy to refer you to ours.
You may have intentionally created the culture of your brand or it may have evolved as you progressed.  Whatever the case, the culture of your brand needs to be solidified.  What are your values? What do you stand for?  What do you stand against?  What is the experience that you want ever customer to walk away with?  What is your Brand's mission?

By aligning franchisees and employees to your brand's mission, core values, vision and unique positioning in the market place, your customers will receive the consistent brand experience whether they are in Knoxville, TN or Reno, Nevada.

As John likes to say, "We are in the Cult business.  We create raving fans of your brand whether they are franchisees or customers."

Clearly defining your Brand Culture is an important factor to becoming a successful franchisor.