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:
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.
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.
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.
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.
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.
For a more simplistic approach to building Key Processes for franchise systems, we use these following categories:
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.
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.
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.
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.
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.
Franchising offers you the opportunity to grow your unique brand, get your ideas out there to more people, and leave behind a legacy for future generations. Not to mention, with franchisees buying into and growing your brand, you can expand to a national or even global market with considerably less capital.
You may be saying to yourself, “Sounds great! Where do I start?” Well before getting started or going any further, take some time to examine your business for franchise-ability.
According to franchise expert John Batcheller, “Going head-to-head in a saturated market is difficult and costly. Emerging franchise brands with clear points of differentiation increase the opportunity for success.” You need to have a clear idea of who you will be going up against. If your competitors are on every corner in every town, what is going to set you apart? Identifying and embracing your niche market is the key to success in any business, and when it comes to franchising it is paramount.
To build brand loyalty, you need a consistent product. To be consistent, you need to have repeatable processes in place. Baristas at a Starbucks in Texas can make you a drink that tastes exactly like the one you had in Seattle last week. The success of Starbucks depends on this consistency. Understand Your Operational Processes and tweak them if necessary. Once processes are in place, examine if your business will do well in other areas across the nation. Some businesses depend on the local environment, like a river rafting business. Others depend on the specific demographics such as tourism, while yet others depend on the charm and pizzazz of certain individuals working at or running the location. There also may be local constraints that can affect your ability to expand outside of your territory. For instance, if you are thinking of franchising a store selling fireworks, you need to consider the various laws from state to state and even county to county.
If your concept is unique and repeatable, is it also profitable? Potential franchisees will be looking for a proven concept. Low-profit margins will scare investors off from the get-go. If you have consistently increased revenues year upon year you will catch the attention of savvy business people. If margins are low, learn How to Increase Profit Margins to make your business more desirable to potential investors down the road. In addition to numbers, investors will be checking your reviews. Are customers raving about your product, or is there something left to be desired? If people have asked you if you are a franchise or if they can buy into your business, it is a good sign that your business may be ripe for expansion through the franchise business model.
So, you want to franchise your business? That’s great. Make sure you have a unique and proven concept that is repeatable and let’s talk.
With different available routes to expanding your business, you might be thinking, “which path should I take?” Well, it depends on what you are expecting out of your growth, and how far you want to take your brand. When it comes down to the choice between growing organically or through franchising, there are some key points to consider.
Expanding your business can be a costly and time-consuming process. Just finding the right location at the right price can be a headache. To grow a business, an entrepreneur must have time to invest in this challenging search. Once the location is found, large amounts of money are needed to pay for the deposit and lease, store build-out, equipment and products needed to run the business.
While growing organically means you get to keep all the profits, it also means you get to foot the bill for all of this. Not to mention the tremendous amount of time and energy consumed in the process while still overseeing the operations at current locations (props to all business people who have grown this way!). Unless a well-trusted team and plenty of investors (or loans) are involved, this generally means one must expand at a slower rate since one person can only do so much.
In the franchise growth model, investors (franchisees) pay all the costs associated with each new location. What is in it for those who invest in a franchise? Franchisees get the rights to a turn-key business, with an easy to follow plan to guide the way. Everything is meticulously put into place; location requirements are set and expert realtors are ready to help; architects already have a plan to expedite; vendors are secured. As a result, a franchisee can have a new store up and running much faster and with less guesswork.
There are geographic boundaries to consider when expanding your business. What areas do you desire to expand into? How far do you want your brand to reach?
Organic growth often limits expansion to areas somewhat near the flagship location. This limited growth may be desirable for those looking to keep it local. But if you want to reach a broader market, franchising may be a better option. Once your brand is ready to launch, franchisees can open a franchise just about anywhere. This allows for greater brand recognition and larger scale expansion, often reaching a national or even global market.
Those expanding their business organically tend to get caught up in the daily hustle of opening a new store while tending to the needs of the already in operation location. Often much-needed processes are vaguely defined and sometimes just get put on the shelf. With a well-rounded franchise consultant and some dedication to detail, franchisors can protect their brand while providing clear instruction on daily operations and well-defined HR practices. All this is often overlooked by the daily hustle of organic growth, which can expose business owners to possible legal issues.
To grow organically one must hire and train a store manager and staff for each location. Training staff (and management) is not as easy as it sounds if you are expecting uniformity in each location. This will stretch your budget and time (and patience!) even thinner. With franchising, the franchisees often are owner-operators, eliminating the need to hire and train General Managers. The franchisees are incentivized to make a profit and turn their investment into success, inspiring more effort and eagerness to follow proven methods of operation. Franchisors provide training guides and mentoring to the franchisees, allowing for consistent training in all locations. The franchisees, in turn, provide and pay for the training.
Some entrepreneurs prefer organic growth. There are advantages to this style of growth, most importantly keeping all the profits! However, it ultimately requires a great deal of capital and time. The rate at which one may grow as well as the market reached, may be limited. Franchising may not be appealing to some, and others may think it is not a viable path to growth. However, if you are looking to expand at a faster rate and into a broader market, franchising can be a well-paved path for expansion.