Looking to grow your small business through franchising? here is a complete guide on how to franchise your business, run it, and make money. …
One of the most reliable ways to maximize your ROI as a business owner is to franchise your business. But you will need time and of course workable strategies if you are to be successful with your franchise plans. With a franchise, you can gain the lion’s share of the market available in your industry.
If you want to franchise your business, you must answer yes to the following questions. Have you been successful in setting up an effective business model for overtime that can survive outside of your current location? Is your brand well known and accepted in your industry? If you answered yes to these questions, you may want to consider using a franchise business model to expand the boundaries of your business and generate more profit.
What is corporate franchising?
A franchise is a type of license that allows people to gain access to their own knowledge, processes, and trademarks in order to enable an individual to sell a product or provide a service under a business name. Franchising is simply selling your business model and brand name to an entrepreneur or investor who could do the same business elsewhere.
In return for obtaining a franchise, the franchisee typically pays the franchisor’s initial start-up and annual license fees. Generally speaking, franchising is a way of doing business using some or all aspects of another business, including its name, brand, and products.
But with recent innovations in the industry, franchising now means getting a license to do business. under the same name as the parent company, and use some or all of the specific elements that have made that business successful so that you can lay the groundwork for yourself.
Franchises are becoming more and more popular, as even most of the most successful businesses in the world are franchises. In this agreement, the person who grants the license is called the franchisor and the person authorized to do business is called the franchisee. It is very important to clarify that this mutual agreement means that the franchisee receives all aspects of the franchise business.
The franchisee agrees to pay the franchisor for what he receives. Sometimes this payment is usually a down payment plus milestone payments so that they pay off as the business grows. Many franchise agreements state that the franchisee must pay more if the business is doing better, but sometimes this is just a regular package for the period.
The terms of different deductibles may differ, but the fact remains that in most cases it is a win-win situation for both parties. With the advent of franchising licenses, people who have capital but are afraid to start a business from scratch can easily own a business and reap good profits from it.
How does a franchise business work?
Franchise partners are the franchisor who licenses the franchise and the franchisee who invests in it. Remember that a franchise is not a stand-alone business. By mutual agreement, the franchisee acquires an operating license based on the proven and reliable practices of the franchisor, which are often detailed in operating instructions.
Please note that this guide ensures that all products and services offered by the franchisor meet agreed quality standards. Business logistics such as marketing, product assembly, service delivery, accounting, store locating, recruiting, and training are all detailed and explained. Many franchisors provide extensive training for franchisees to ensure the business is run according to proven methods, making it more likely to be successful.
Please also note that the duties and responsibilities of the franchisor and the franchisee are fully agreed and recorded in the franchise agreement. Many franchisors also use a standard agreement.
How Business Franchises Make Money
Franchising is a proven and reliable method of business expansion. The aspects of the business that have helped her be successful are what people will pay for. Sometimes franchisors run corporate stores that replicate the original business to varying degrees. The profitability model of this business is generally equivalent to the financial model applicable to the original business.
You should keep in mind that there are many potential payments that the franchisor may charge to the franchisee’s business. But each franchisor will have to decide which rates are best suited to their system and financial goals. Please note that their choice will greatly affect the attractiveness of their system to potential franchisees. But sometimes these costs are directly related to some of the main silos listed below.
- Franchise fees (upfront)
it is simply an initial fee paid to allow the franchisee to use the franchisor’s system and brand (s). The size of the franchise varies in size. These fees will be used to offset costs such as brokerage fees and the cost of complying with the applicable disclosure regime as required by law.
- Transfer and renewal fees
They are also paid by charging a franchisee fee if they wish to transfer or renew their agreements. Most of these costs will apply to costs incurred by the franchisor during the transfer / renewal process.
- Redemption / purchase fees
They also make money overseeing the construction or renovation of franchise stores. They may have subsidiaries in charge of construction or renovation, or they may even outsource the work and charge additional fees to the franchisee responsible for paying for the work. Note that these costs can be significant, such as the salaries of the staff involved. construction. This can greatly exceed the costs of the franchisor’s participation in the construction, so that the franchisor can make money on building or repairing the store.
4. Compliance systems
Indeed, the franchisor is primarily concerned with monitoring the performance of his franchisee in business and in all its aspects. All of these processes, including employee visits, secret buyer programs, audits and compliance programs, are costs to the franchisor. Many franchisors tend to transfer to an account or other business related costs. Keep in mind that these costs may or may not include an element of profit.
5. Events – Opening date / Agreement
Some franchisors require their franchisees to participate in promotions and system deals. They can charge a fee for these events which is another source of profit for them.
6. Initial and continuing training
Franchisors use employees and others to train new franchisee operators / managers. Franchisees generally bear the costs in the form of tuition fees. Franchisors can add a profit component to their tuition fees.
7 current royalties / fees
They also charge royalties as a percentage of the franchisor’s gross sales or as a fixed fee billed periodically (usually monthly). Royalties or charges reflect the underlying license agreement. Please note that in most cases, franchisees pay these amounts regardless of their profitability.
8. Consumables and equipment
Franchisees generally use consumables and equipment recommended or suggested by the franchisor. Many franchisors mandate this use for the purposes of quality control and customer consistency. Note that they also do this so that they can take advantage of the buyer’s group benefits. We believe that the benefit of this purchasing power may or may not be shared with the franchisee. Franchisors can also resell products directly or indirectly to their franchisees.
We also believe that they can also claim rebates from system vendors, which they can choose to keep for themselves or share with their franchisees. They can create private label programs where they provide their products to use in the system at the prices of their choice. Many franchisors require their franchisees to purchase supplies only from approved vendors that allow these agreements. The costs of the franchisor in its role in the supply chain can be covered by these mechanisms.
Note that franchisees maintain a fund to which franchisees contribute to enable businesses to run local, regional and national advertising campaigns for the benefit of the system as a whole. It is quite possible for franchisees to contribute a percentage of their gross sales, again regardless of their own profitability. We believe these contributions are for advertising purposes, but they are also often used to cover the salaries of fund managers and other head office expenses.
License vs Franchise: What’s the Difference?
I. The franchise business model allows the franchisor to dictate the exact methods and systems (such as style of construction, uniforms, menus (for food businesses), interior trim, and location of the business.
While under the licensing business model, the license buyer, known as the licensee, is free to develop their own business model, they are free to choose the building style, uniform and location from which he wishes to operate on, but he cannot change. logo. , brand or trade name of the granting company.
ii. The franchise business model allows the business owner, i.e. the franchisor, to effectively control the franchisee in the management of the business. In fact, they do their best to ensure that the performance criteria or quota requirements that the franchisee must meet and maintain are met.
In the commercial license model, the licensee (licensee) is not required to meet any requirement criteria or even meet the performance standards of any oversight body.
iii. In a franchise business model, franchisees must pay certain fees, which may include payments to a marketing fund. If you own a franchise, you get a commission, usually an upfront payment, plus an ongoing royalty plan, which can be a percentage of sales or a fee for a product sold, etc.
While in the case of business model licenses, the purchaser of the business license pays certain fees, which are usually one-time, in which case the business owner will not be allowed to manage the marketing fund.
iv. Anyone who purchases a franchise from a company by agreement authorizes the use of the intellectual property of the company (franchisor) (for example, brands, menus, advertisements, logos and identity of each brand). In addition, the Licensee is expected to use the trademarks and intellectual property of the licensor if desired.
So, if you’ve done the proper research and it’s clear that your business model could easily be operated by someone else without your control, you should consider franchising your business and brand. Franchising is indeed a very effective strategy that can help you conquer new markets and achieve multiple returns on your investment.
Here are some of the steps to take if you want to franchise your business in the United States of America.
5 Questions You Should Ask Yourself Before Deciding to Franchise Your Business
If your goal is to ensure that your business continues to grow and develop after a franchise, you should ask yourself these five important questions to help you prepare.
a. Did you make enough profit to attract franchisees?
If you want people to invest in your franchise, you need to show them that they can make an awesome return on their investment, so the first question you need to ask yourself is, “Am I making a lot of profit?”
You don’t want your franchisees to get annoyed when they aren’t making enough profit, and you don’t want your business to get a bad reputation or crash under the weight of a bad franchise, so make sure that you not only make a profit, but a big profit before you start franchising your business.
b. Do you have sufficient business experience?
To be successful in selling a business franchise, you need to understand all of the specifics of your business. You need to be able to reasonably foresee the problems your franchisee will face and to offer proven solutions to those problems.
If you’re just starting out, consider taking some time to really learn more about your business, your customers, and the industry you work in so that you can easily help your franchisees overcome any potential challenges they might face in this matter. paths.
vs. Which franchise model is right for you?
There are two main types of franchise models and you will need to choose the one that best suits your business and industry.
The first is a product / brand franchise where you sell the brand name or the right in the name of your business or your products to the franchisee. This means that they can now manufacture products using your company name.
The second model is known as the business format franchise. For this model, you will need to continue to be involved in the franchisee’s business. You will continue to provide them with products, training, marketing support, and everything else they need to make the business (your business and that of your franchisee) as one.
Franchising in a commercial format gives the impression that a franchise business is a branch of your own business.
You will need to choose the model that is most suitable for you, depending on the time and resources you want to save, and the degree to which you want to get involved in helping your franchisees run their business and keep both types of businesses alive. . synchronously.
re. How much will you charge as a percentage of franchise fees?
When you sell a franchise for a business, you earn income from a percentage of the franchise that will be paid to your franchisee. This is typically 4-6% of total sales, but some companies charge higher fees. You need to determine in advance how much you will charge, what costs will be covered by the fees (entrance fee, business license, insurance, etc.) and whether you want to invoice these fees monthly or annually. …
You also need to know how much profit you will get from the franchise down the line so you can determine whether or not you should try it.
e) Are you prepared for the legal consequences?
Franchising your business is not as easy as the franchise consultants say. Depending on the state of your business and that of your franchisee, many legal issues arise.
Several documents need to be prepared and signed and you will also need a lawyer as well as a business consultant to help you pack your things. This will help you afford to pay those bills before starting your own business. considering franchising your business.
Never enter into a franchise agreement thinking that you can make a lot of money without spending a little money. Franchising your business is a process that takes a lot of paperwork, planning and execution, and while it is true that you can make a lot of money with it, you will also need to invest some money, especially in initial steps.
How do you set up a franchise for your business, run it, and make money? The Complete Guide
- Revise your business plan
In a real sense, if you want to franchise your business, you have to start the process from scratch, which means you have to revise your business plan to make sure it fits the franchise; otherwise, you will have to reconfigure it.
Your business plan should be able to tell you the type of extension that suits your business model and all the options available to you. The fact remains: if you have a comprehensive and highly achievable business plan in place; when you start selling it becomes a lot easier for investors to buy a franchise from your business.
- Building a viable business model and a well-selling brand
Another thing you need to do if you want to franchise your business is create a viable business model that will sell. From the first day you start your business, make sure all business processes are well documented and easy to understand.
Any employee who chooses the Standard Operating Process (SOP) for any part of your business. a business needs to be able to understand this and work with it with minimal training or guidance. You should also consider creating a brand that can be easily accepted by the public. The truth is, the public perception of your brand is a key factor that determines how easily you can sell your franchise.
- Conduct a survey in different locations
If you are considering franchising your business, it would be great if you deliberately tested the waters for first-hand information about the acceptability of your brand outside of your business. What you need to do is hire experts to help you design questionnaires to help you get the facts about your brand.
Questionnaires should be entered where you plan to operate, you will need to pay professional fees, but the results of the exercise will help you sell your franchise to potential investors, especially if the reports are favorable.
- Take a close look at the companies that have sold the franchise
It’s important to note that franchising is one of the easiest ways to push the boundaries of your business and generate huge returns on your investment, but the truth is, if something isn’t right for you, it can. give you sleepless nights. If you’re wrong, the business may collapse sooner than you expect.
Therefore, the best thing to do if you intend to use a franchise to gain market share is to research and closely monitor existing businesses that are franchising. If you do this, you will be able to learn more about the challenges they face and how you can strategize to overcome them when you start selling your own franchise.
- Hire a lawyer to help you write the terms
Business consultants will advise you for free that franchising your business can be difficult and can cause problems if you sell your franchise to the wrong investor. Also, if your terms and conditions are not clearly spelled out in the contract document, there may be a business regulatory issue. If you want to franchise your business, you should look for attorneys who specialize in developing terms for businesses selling franchises; they are in the best position to tell you about this aspect.
- Promote and advertise your franchise to potential investors
If you have evaluated everything correctly and are sure that franchising your business is what you need, you should take every opportunity to promote and sell the franchise to potential investors. You can host your franchise on online platforms that advertise businesses and franchises for sale. You can consider advertising your franchise in print and electronic media, you can ask potential investors to sell your franchise, and you can attend trade shows to promote your franchise.
- Mentor and train those who bought your franchise
One of the keys to helping you be successful with franchising is that you need to develop a training model that will be used to educate those who buy your franchise. Since all the processes and recipes (in some cases) for running your business will be documented and transferred to the person buying your franchise, it is very important to set aside a few days to train key employees in management and management techniques. Company.
You can also create mentoring sessions for those who have purchased your franchise. The truth is that there are contests, and if your contractual agreement is charged with this premium, then you will have an advantage in the market.
Finally, even if franchising your business is your safe bet, to make more money with your business you should try to critically review the above points and research some more if you really want to be successful. exceptional value for your business franchise.
Now on the question of duration, obtaining a business franchise involves several complex processes. Thus, on average, it takes 3 to 12 months to complete the procedures related to obtaining a franchise. Now the next question is, “How much does it cost to get a franchise in the United States?”
How much does your business franchise cost?
How much are you spending to get a franchise? the deductible for your business depends on several factors. For example, you are likely to pay a higher price to get a franchise if you use the services of a development company or franchise lawyers. This is because you pay additional fees for the services of the development company you use. On the other hand, if you go through this process yourself, you can save costs here and there.
Let’s break down the costs associated with registering a franchise in stages to help you get an idea of the costs involved. Please note that the amount shown in this article is only an estimate and you may get a lower or higher rate depending on such factors as the current economic situation of the country.
A breakdown of the cost of obtaining a franchise for your US business
The first step: . This step includes some pre-registrations that must be completed before applying for the franchise allocation process. The amount involved in this phase is small and you can go through this phase in a matter of weeks, depending on who you are working with.
- Trademark Registration: Before starting the process of registering your business as a franchise, you need to make sure that your business is registered as a trademark. To get a government trademark, you will need between $ 100 and $ 200, and to get a federal mark, for each service or product that you want to protect, you will need $ 300 to $ 500. It is advisable to use a federal mark because the protection it offers extends to all states in the country. But a trademark attorney charges at least $ 1,000 for it.
- Creating a Franchise Guide: This guide is a document containing instructions and procedures to teach new franchisees the steps to start a successful business. This is also known as a franchise operations manual. Some companies are developing a nationwide franchise guide. If you choose to develop a franchise guide for your business, you won’t spend anything there. If, on the other hand, you outsource the project to a company, some may charge you up to $ 20,000 to process the project.
- Audited Financial Statements: One of the Documents Required To Prepare for a Franchise The disclosure document is the financial statements of the business. This should be verified by a reputable audit firm. Audit fees for a company’s financial statements start at $ 3,000. This amount depends on the business and the complexity of the account.
- Franchise Disclosure Document: To sell a franchise, you must comply with federal regulations. This law requires any business intending to sell its franchise to have a franchise disclosure document. This document takes most of the money to register a franchise. You need the services of a lawyer to draft this document. Due to the complex nature of this document, most law firms charge at least $ 20,000 to complete it. This is not surprising, since the document in question is in most cases hundreds of pages.
Phase Two: This phase covers the main process of registering a franchise and other follow-up activities that you need to obtain a franchise.
- Franchise Registration: Basically, some states offer free registration for a franchise, but about 14 states charge a fee for this process. The fees charged vary from state to state. The cost of public registration is $ 300-1000. In addition, you need to budget extra for the lawyers who will take care of the registration and registration. You need to set aside about $ 1,500 for each state record. You can start with one state and move to other states over time.
- Your team: You need to budget extra to hire a franchise team. The job description of your franchise team is to educate your franchisees and help them run their business efficiently and legally. How much you spend on it depends on how many people you want on the team and what level of skills and experience you need. You can hire this job to your employees to save costs.
- Sell Your Franchise: Your franchise won’t sell on its own, unless you’ve already created a national brand for your business. So, you need to set aside a certain amount in order to publicize the existence of your deductible. The money will be spent on online advertising, advertisements and franchise exhibits. To do this, you can set aside at least $ 10,000 in the first year.
This is basically what it costs to register a franchise in the United States. You need to set aside at least $ 70,000 if you want to outsource the entire process to an outsourcing company or law firm. On the other hand, you should set aside at least $ 35,000 if you are going to handle most of the development stages of a franchise tutorial on your own.
Franchise Your Own Business How To Maximize Profits
Many entrepreneurs who are new to franchising or considering becoming a franchisor may find that the main source of income for a franchise is franchise fees. But many franchisors have been kind enough to admit that their main source of income is far more than royalties. The primary sale of the franchise itself can be a loss factor for the franchisor, so you need to understand how to maximize your profits as a franchisor.
I. Build a strong bond with franchisees and engage in difficult conversations with them
We believe that many franchisors withhold difficult conversations with their franchisees for fear of damaging the trust of the franchisee, which could lead to other problems over time. But note that it is usually best for the franchisor to conduct these difficult conversations as soon as they learn that the franchisee is in trouble, as this will be in the best interests of both the franchisor and the franchisee.
It is always better for the franchisor to raise the issue with the franchisee rather than waiting for the franchisee to come to you. We believe that the sooner you talk to the franchisee, the sooner both parties can resolve this issue.
ii. Be quick to spot ineffective artists as early as possible
Immediately you find that one of your franchisees is operating inefficiently, find the franchise system first, then the franchisee. We believe that the poor performers fall into two main categories: franchisees who struggle to meet their sales targets, or franchisees who have a bad relationship with time.
Note that the former is relatively easy to manage, through promotion programs, etc. But the latter is a deeper, less specific issue that can wreak havoc on the franchise system in subtle ways. We suggest that potential candidates who have high egos or unrealistic expectations be carefully screened out when signing a franchise agreement as these characteristics are not suitable for working within the narrow confines of the franchise system. Remember that your franchisees represent your personality in different places.
iii. You will need to understand successful franchisees
To maximize your profits, you need to look at the long term of your franchisees and the income they will bring to you. Keep in mind that focusing too much on short-term goals and income can cost you money in months or years.
If a promising or high performing franchisee is having a tough time due to poor health or staff turnover, the franchisor may consider writing off some of the franchisee’s debt or offering a loan to the franchisee. ‘help solve cash flow problems. Remember that the relationship between the franchisee and the franchisor is subject to the specific conditions of the franchise agreement and the franchisor can change the terms of the agreement so that both the franchisor and the franchisee benefit.
iv. Provide referral programs for franchisees in difficulty
These programs can be very useful for franchisees who are still struggling to meet their sales goals nine months or more after starting a franchise, or who were initially successful but faced a stumbling block. We suggest that you offer them referral programs for free, as long as they agree to do the job and meet the program requirements.
Also be aware that these referral programs will vary depending on the industry and the nature of the franchise system, but they should consist of additional training for your franchisee and their management team.
In conclusion, running a franchise is certainly attractive and profitable, but there are some things that you should not joke with if you plan to be successful: for example, when preparing your annual budget, always prepare for three scenarios. possible.
If your franchise system is just getting started, these three scenarios should be worst, targeted, and best; but if your franchise system has been working for a few years and you’ve achieved royalty self-sufficiency, these scenarios could be the best, the best, and the best. You should understand that preparing these budgets in advance will help you adjust your business plans whether your sales are better or worse than expected.
You should also research the industry you hope to venture into and the key factors of the franchise. By understanding some of the key factors and factors that affect the success of your franchise system, you can find ways to make your business more profitable.