How to Franchise Your Small Business

1) Your Business Must Have Proven Success That Can Be Replicated

Before franchising, Subway had 16 stores with a healthy profit. They reasoned that if 16 stores could be successful then 16,000 would be as well.

2) It Takes a Team

You need to have a strong team in place. Each aspect of the operational structure of your franchise needs to be covered. Someone should be accountable for the Product, Legal, Systems, Communications and Cash Flow. You need an Org chart.

3) The Franchise Proto-type

How will you replicate your business experience in each location? First you must have a defined, predictable experience. You must develop your businesses “franchise proto-type” manual. This includes your operations/policies-procedures manual as well as an accountability standard you will use to ensure the experience is predictable from product to décor to service to marketing.

The System

There is nothing more important in your business than creating a system that works and then sticking to that system. The system runs the business. People are secondary. They run the system. The system is clear-cut and clearly defined. The system takes all discretion, all opinion, and all argument out of the mix and therefore no decision can be made on a whim or made by somebody whose judgment is affected by a particular mood at the time. The system has been put in place because it works and therefore it only needs to be followed blindly by the people who run the system for your business to work. And you don't even have to be there to watch them do it! You are no longer your business and it will not disappear if you are not there. In fact the system can be - and should be - operated by people with the lowest level of skill (otherwise how could you have another 5000 businesses like it). They only have to follow procedure to achieve the consistent, predictable results which are entirely pleasing to everyone from your customers to your employees.

The system is the solution to the problems that have beset all businesses since time immemorial! The free time that you've always wanted, that you listed as part of your Primary Aim will now be available to you.

Managers with little management experience, staff with ordinary skill levels, yet the business thrives on a major league basis because attention has been paid to every detail in the system so that the highest levels of discipline, standardization, order and cleanliness apply in a way which guarantees that customer expectations can be fulfilled in exactly the same way on every occasion. McDonalds' Franchise Prototype was a masterpiece creation and it set the lead for others to follow.

“When you start a business, develop it as if it is a franchise prototype: Systematize everything you do in your business, from how you answer the phone to how you handle customer complaints to how you market and sell your products and services. Document the processes by writing step-by-step sequential procedures.” - Dick McCormick, Biz Success Weblog

This creates across the company consistency.

It provides for shorter training times and allows you to cross-train more effectively.

It allows for a less skilled, less costly person to meet your objectives because the process just needs to be followed as laid out.

“Document your processes if you haven’t already. Put them in a procedure manual. BEGIN with your MOST important systems, those that most affect your customers, those that are the mostexpensive, those that are the most complicated and most likely tocause problems or confusion.

Once the system is documented and in place, you can go back and review the process to see if there is a better way of accomplishing the same thing. Periodically ask yourself if you are accomplishing what you want to accomplish. When you review the process, flow chart it. Evaluate the process and determine 1) If there is any step you can eliminate, 2) If you can develop a more effective sequence, 3) If you can physically position things (paperwork, materials, machines or …) for a better flow , 4) If you are duplicating anything in another process someplace.” – Dick McCormick – Biz Success Weblog

4) Time to Shell Out the Bucks – Get a Franchise Attorney

Yep, sooner or later you are going to have to pay some legal fees. You need the expert advice of an attorney, particularly one with franchising experience. You are going to have prepare an assortment of legal documents including the Uniform Franchise Offering Circular to be viewed by potential franchisees and state and federal government entities. If this guy cannot be your franchise consultant as well then you probably need to find one.

5) You’ve Got Some Convincing To Do

Now you must sell your idea. It is time to find potential franchisees and present your sales pitch. You also need to look over other franchise prospectuses and see how they went about the pitch. You must also follow FTC rules in the creation of the prospectus.

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.

Some Key Points to Remember:

• Franchising is ideal for distinctive business models that can be easiliy duplicated and scaled.
• Owner attitude must be ambitious - you must be invested in growing the business.
• Focused management interest with business knowledge.
• Innovation must be present.
• Strong profits should be prevalent in current business.
• A strong, experienced team must be in place.
• Should have at least 2 business locations-need to know that the business can be successful in different areas and success is not just a location thing. Also, need to have experienced transfers and a variety of problems from different locations.

Questions to ask yourself before franchising:

Can your success be duplicated or is your involvement/expertise in the business vital to turn a profit?

Is there something about your product/service or the way in which it is produced that is unique enough that it cannot be easily duplicated (people will want to franchise it instead of starting their own very similar business)?

Do you have an operating system that has been tested and can be duplicated and monitored?

Do you have money up-front to finance franchising your business?-There will be a large outlay of money before any franchising royalties will be received-attorney fees, franchise consultant fees, marketing.

Talk to a franchise-experienced attorney-paperwork and determine if a franchise consultant is necessary for you.

Once you are a franchise:

Market, market, market-get your name and the knowledge that you are now a franchise out there to find those who would be interested in owning a franchise.

Redefine your role-no longer sole proprietorship that runs the business and is greatly involved in daily business operations; Marketing/finding franchisees is your new role.