Setting up a Franchise system is not easy and straightforward. However, while initially overwhelming, once established and operating effectively it has great benefits and significant rewards.
If you have been considering franchising your business, and you are not sure where to start, we recommend that you ask yourself the following questions:
“Is my business profitable and successful?”
This may sound like an obvious question but some business owners see franchising as a way of “saving” a failing business. To effectively “sell” a franchise, you will have to demonstrate that the business has at least 3 and ideally 5 years of profitable trading figures or a very good reason why not. If not a Franchisee will simply not be interested and most certainly the bank or lending institution will not lend on the purchase of the franchise.
“Can my business be replicated in other geographical areas?”
Maybe your business is situated in a particular area that generates great sales or customers. Can that be transported to another area? If not then your business may have difficulties. Ideal businesses are where there are numerous branches that are all operating profitably in their own right.
“Can my business be cloned?”
Are you able to repeat the same business in different state based or interstate areas, do the laws of those areas impact adversely on this happening?
“Are my systems documented and transparent?”
It is essential to be able to franchise a business to be able to rely upon well documented Operations Manual. This is the bible. Many people think that it is the Franchise Agreement but it is the Operations Manual and training in the workings of that Manual that will be the difference between an easily operated and profitable franchise to one that needs constant input and management of the Franchisee, the whole reason for many Franchisors in going down the franchising path.
“Do I have a good financial model to demonstrate that a Franchisee can be successful?”
Ultimately what you as the Franchisor want is to have a series of franchises in the system that all operate profitably so that they can pay to you the various franchise fees under the Franchise Agreement. If not then franchisees will fail and enormous time will be spent doing a “workout” of that franchise business.
For instance it may be suggested that the Intellectual Property (“IP”) for the business be place into a separate legal entity to protect it in the future in the event that business suffers some catastrophic business or economic failure.
There is no formal registration process for franchises but it is a highly regulated environment and one not to stray into without sound and experienced legal advice by franchising lawyers that know what they are talking about.
We recommend obtaining an experienced franchising lawyer to review your intended set up and FC Lawyers can assist to ensure your business is ready. Franchising can be a very challenging and exciting process and putting in the ground work in the early stages, considering your options and getting the necessary legal and financial advice is imperative.
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