So now you know what it means to “franchise” a concept or brand. You want to move forward in this exciting new opportunity and franchise your business. What are the next steps you should take to prepare yourself to launch? There is no one size fits all answer to the question of “When is the right time to franchise?” However, there is some standard guidance that can help a business owner getting started on the journey. We recommend the following first steps for clients committed to pursuing franchising:
- Develop an up-and-running profitable business to provide proof of concept. It should go without saying, but your concept should make money. If the business is a brick-and-mortar storefront location, then you should have a few units in operation that are profitable operating under the model you would expect to license to prospective franchisees. If you operate your business as a service-based concept, then you should ensure that a franchisee operating within a restricted area is likely to be successful. In both cases, take into account the royalties and other fees that will be paid by the franchisees to you. Your books and financial records should segregate these operations now so you can track the income, expenses and other metrics on a location by location or unit by unit basis. This will be critical to drafting financial performance representations (Item 19 FPRs formally known as “earnings claims”) your prospects will want to review.
- Trademark all important commercial names, symbols, logos and slogans associated with the brand via federal registrations. The process to obtain a federally licensed trademark registration from the United States Patent and Trademark Office can be up to 12 months and sometimes longer. It is also not guaranteed. Prospective franchisees want to know they will have the right to operate a business under the licensed marks. File with the USPTO sooner rather than later. If you already have a USPTO registration for your mark, then make sure keep any maintenance required filings up to date.
- Drill down on the costs to launch a franchise system. Launching a franchise system is an entirely new business endeavor and costs both time and money. You will need competent franchise counsel. You will also need an accountant who can prepare audited financial statements each year. You may also want to hire new personnel such as trainers and franchise sales brokers or agents. There are consultants you can engage to assist with drafting operations manuals and providing other business advice. There are many low-budget franchise promoter outfits that promise to provide all of these services for one low cost. Be wary of these promoters, do your research, conduct due diligence, and remember that you often “get what you pay for” with these service providers. There are many reports of lawsuits resulting from shoddy deliverables. You may end up paying twice to fix the work and expose yourself to lawsuits from disgruntled franchisees.
- Organize the guidelines that will comprise the Operations Manual. Your Operations Manual will be the compiled guide book of processes, procedures, system standards, instructions and operation methods. Key topics include: business overview, initial training, marketing and advertising, approved suppliers, required equipment, materials, customer service, site selection (if applicable), initial inventory and insurance, among others. Start to formalize the operating procedures, recipes, processes, procedures, best practices and guidance so you are ready to prepare the Operations Manual when the time comes.
Taking these critical steps will help you start your franchise journey off on the right foot.