How to Start a Franchise and Become a Franchisor

When you achieve a certain level of success with your business, it makes sense to want to expand. But that doesn’t mean that you have to create a huge corporation. Instead of doing all of the expansion yourself, you can encourage others to do it for you. Franchising your business can provide you with a way to get others to grow your brand and expand your reach. Plus, it can provide you with a source of income.

franchising

When others buy into your franchise, your business receives a payment — and it is often regular. Normally, with a franchise, the franchisees make regular payments to maintain the right to have your business name over their store. And, on top of that, you can set requirements so that franchisees maintain certain practice and a certain image so that your brand isn’t sullied.

If you want to start a franchise, though, you need to make sure that you have your ducks in a row. It’s not as simple as asking someone to pay you to open a location with your (successful) business name on it. There are legal procedures to follow.

Legal Considerations of Starting a Franchise

Just as you have to file the right paperwork when you start any business, you need to follow proper procedure for turning your business model into a franchise. The FTC requires that you have a Uniform Franchise Offering Circular. This is a disclosure document that sets forth the rules of your franchise.

On top of that, check with your state so that you understand the legal procedures and requirements. Remember that you have to worry about state laws as well as federal laws when you start a franchise.

Your best bet is to retain the services of a knowledgeable business attorney. There are business lawyers that specialize in franchise, and one of them can help you set up your franchise properly so that you have all the right paperwork filed, and to ensure that you keep up with requirements.

Develop Your System

The point of a franchise is to provide franchisees with a business model that is practically turnkey. This means that you will need to develop a system that can help your franchisees find success. You won’t have many people willing to pay the franchise fee if you don’t provide a certain amount of support. Some of the things you need to develop in order to start a successful franchise include:

  • Marketing plans
  • A way for franchisees to buy supplies cost-efficiently
  • Training programs
  • Regulations and procedures for hiring, etc. that meet local and federal laws
  • Sales system
  • Communication systems and chain of command

Before you start your franchise, make sure these items are in place. It takes a tremendous amount of work to convert your successful business into a franchisable model that others can operate without reinventing the wheel. You can get help organizing and developing your system. There are business consultants (make sure you choose someone reputable) who can direct your efforts and help you put your vision to paper.

Finances

Don’t forget about the finances. When you start a franchise, you need to keep good records, and use a reliable accounting system. Before you really get going, you need to have your accounting system in place. This will help you as you pay for consultants and experts, and as you pay for legal fees and the costs associated with putting together a system that your franchisees can use.

Make sure that your financial statements are properly audited by a recognized accounting processional. You will need to figure out what business structure is best for your franchise company. Do you want to convert your current business into the franchise company? Or does it make more sense to start a new company for the franchising purposes?

The way you approach your finances matters. From the income you generate to the expenses associated with operating, you need to make sure that everything is set up in accordance with best accounting practices, and with federal and local laws.

Bottom Line

If you want to start a franchise, you need to be determined — and you need to be ready to do a lot more work. Turning your successful business into a franchise opportunity will take you back to square one as an entrepreneur, and you’ll be putting in just as much, or more, work as when you first started your business.

For more on starting a franchise, check out the International Franchise Association.

Photo credit: Re:group.

About the Author

By , on May 23, 2013
Miranda Marquit
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.

Leave Your Comment (One Comment)

  1. Manette @ Barbara Friedberg Personal Finance says:

    Great post. Getting a franchise or becoming a franchisor never entered my mind when I was trying to decvide what kind of business I should venture. But I believe a lot of people trying to get into this industry will learn a lot from this post. I am looking into more posts of this topic.

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