How to Franchise Your Small Business Part Two

Profitability is important.  Again, you are going to have to show a healthy bottom line in the initial business in order to a) successfully sell the model to potential franchisees and b) to even justify the replication of the model – why repeat something that is not working in the first place?

The income you can expect from your franchised business will come in the form of franchise fees, royalties, promotional advertising, vendor rebates, supplies and equipment sales.

You are also going to need to set up “equipment channels” with suppliers.  You need to direct your franchisees to the same bucket of suppliers and set up a contractual discount for the equipment.

Does the cookie cutter already work?  It’s important to already have multiple, successful locations of the existing business before going on to full-blown franchising.  Again, the operations manual must be in place and easy to implement and it should detail how each part of your business works: How are customers greeted, how is the food prepared, what colors are used in the business, what accountability standard is there to guarantee the customer experience is consistent.  Everything must be documented. You also must create training programs for franchise owners, managers and employees.

Online resources are available to provide you with a franchise consultant.  Google on Franchise Consultant and make sure you spend adequate time researching the short list.

It is important that your business have a unique model.  If you own a hamburger stand how does your hamburger stand differ from every other hamburger stand located across the country.  You must have a defined, differentiation factor for your business, detailed in the operations manual of course.

Make sure you register and patent your intellectual property.  You need a good patent attorney to register your trademark and intellectual property to be used throughout the franchise.

Treat the Business as a System 

Summarily, you are replicating the existing success of your business.  Your goal is not to work harder and longer hours.  Your goal is to own the system through which your business model is disseminated.  Thus, you need to step back from the role of hands-on management you have more than likely held and you need to see your role as that of a conductor for the orchestration of the franchising. 

Once the franchise has successfully blossomed and a team is in place, you need to determine how your role can become more and more passive. The key here is that you are receiving franchise fees, royalties, promotional advertising, vendor rebates, supplies and equipment sales revenues due to your franchising.  You are not creating a full time job for yourself unless of course you choose to take an active role.

The Regulations are a Two Way Street

The Uniform Franchise Offering Circular (UFOC) has to be filled out and there are other regulatory hurdles to be cleared.  Although these hurdles are chiefly designed to protect the franchisee, they also protect you as the franchisor should the franchisee begin running the business in a way you disapprove of.

Can it Still Profit?

Remember, a franchisee’s income statement is going to face extra cost that the original business did not: chiefly upfront franchise fees and royalties.  Can the business still make a profit in the face of these extra expenses?

Fees, Fees and More Fees

It’s not going to be cheap getting your franchise model up and running.  You are going to have to shell out for attorney fees to create the UFOC and get the franchise registered, accountant bucks in order to prepare financials, marketing fees to promote the franchise to franchisees, training fees for both manuals and the staff and for other systems to run the franchise.  Depending on the size of the business, this could conservatively run to a quarter of a million dollars.