Going from a single-entity operation to a franchised business is no easy task, but companies can pull it off if they take the right steps. Unlike many other industries struggling to recover on the heels of the Great Recession, the International Franchise Association reports that the franchising industry is poised for growth in 2011. It predicts more than 19,000 new franchise establishments will be formed this year, resulting in nearly 200,000 new jobs added to the U.S. economy.
But how exactly does a business successfully replicate itself, and where should business owners start? Before you move forward with plans for franchising, be certain your business is in line with the following five steps.
- Make sure your business concept can effectively be duplicated.
Owning and operating one company is very different than running multiple businesses as a franchise. “Anytime a company wants to engage in franchising, the most critical step is demonstrating that the initial concept can be cloned beyond that one or two outlets that the current entrepreneur may own,†says Patrick Kaufmann, professor and franchising expert at the Boston University School of Management.
And keep in mind a red flag should go up if the business is too dependent on the people running it. Relying more on a person or team of people for your business’ success than you do on the actual business concept could mean you’re not ready to franchise. You should have full confidence in your business’ ability to flourish based on concept alone.
- Create a solid training system for your franchise.
“Franchising depends on your ability to systematize the knowledge that you have,†says Kaufmann. This means business owners must implement a roadmap in the form of operations manuals to maintain consistency throughout each franchise. Franchising is about selling knowledge and a certain way of doing business, so you must provide franchisees with adequate instruction, training, manuals, support and techniques.
A franchisee should be able to refer to the manual(s) in your absence and have a clear understanding of how the business will be run. “How can you teach someone to work your business if you don’t have an operations manual in place?†asks Miriam Brewer
, director of diversity for the International Franchise Association. “That is a recipe for disaster.â€- Research and hire a franchise attorney.
Franchising is
a federally regulated industry, and not following the law can get you into trouble. So before you file any paperwork, hire a lawyer with franchising expertise; a lawyer with experience in business or corporate law just isn’t enough. “Most attorneys will say they know all about [franchising] when in fact they don’t,†says Burton Cohen, founder of Florida-based franchise consulting firm Burton D. Cohen and Associates L.L.C., and professor of strategic franchising at Northwestern University’s Kellogg School of Management. If you need a starting point, the American Association of Franchisees and Dealers has a list of franchise lawyers by state (www.aafd.org/legaline.php).
- Work with your franchise lawyer to develop a Franchise Disclosure Document.
The International Franchise Association defines an FDD as a document that discloses information about the franchisor and franchise system to the franchisee. In the document, there are 23 sections covering everything from the franchisor’s history and finances to contracts and franchisee fees. Any franchise sale must comply with FTC rules, one of which is the filing of the FDD. This underscores the need to hire a lawyer with franchising experience: “You don’t want someone creating your FDD who is just learning [franchise] law for the first time,†says Andrew Sherman, lawyer and author of Franchising & Licensing: Two Powerful Ways to Grow Your Business in Any Economy (AMACOM; $45). “No matter what, those documents have to be right, or you’re subjecting yourself to federal and state penalties.â€
- Have a plan for recruiting franchisees.
Don’t forget franchisees are a significant part of the franchise system, so a sound recruiting structure must be in place to attract them. Brewer says businesses should ask, ‘What would make a prospective franchisee decide to go into business with me? What is my plan for recruiting?’ In addition to making sure your business concept is solid, your contracts are fair and you offer ongoing training and support to your franchisees, consider having a “discovery day,†where prospective franchisees come to learn more about your business. This gives you an opportunity to make a good sell and see if those interested in your company will be a good fit for catapulting your business toward franchising success.
For more on franchising your small business pick up the April 2011 issue of Black Enterprise.
Ready to take your small business to the next level? Join us at Black Enterprise’s annual Entrepreneurs Conference, taking place May 22-25, 2011 in Atlanta, Georgia. Visit blackenterprise.com/ec for more details. As an incentive BE is offering you a discount on early registration: Just enter code BEDG295 and receive $200 off.