A franchise of a business is the authorization given to a third person or company to operate under the name and system of an established business, somewhere and for a certain period of time. Usually, this agreement is based on compensations such as royalties, utilities, etc.
To better understand this concept, we can think of some examples like McDonald’s and KFC. These fast food businesses are all over the world and have managed to expand thanks to their franchises.
What you should keep in mind is that you as the owner of the company, do not take care of the franchise or the franchises.
You grant the right to use the brand, image, business system, etc. to someone else, so it’s easier for them to attract customers than to start their own business under a new name. Another benefit is that they operate under a business model that already works, they do not need to create one.
It is a win-win agreement, the successful company can easily expand and the new business benefits from the reputation of the brand.
How do you think many famous companies have a presence in hundreds of countries?
Although they may have many official stores, at some point it becomes very difficult to manage as many business units. Obviously, a business must maintain its reputation, so the person or company that takes care of the franchise must acquire all the necessary knowledge.
Something you should keep in mind is that when you franchise your business you are creating a new business.
It is not an extension of your existing business. Quite apart from the main business you handle, the fact of franchising is selling and executing the franchisor service.
Your obligation now is to make your franchises successful.
How to create a franchise in 6 simple steps
1. Evaluate your business
The first thing to create a franchise is to ask yourself if your business is ready or not to be franchised. In addition to having a good number of sales and profits, there are other aspects that should be taken into account.
You must see that the concept of your business is attractive to potential franchisees and to the final consumer. It has to be something possible to replicate and function independently, it should not depend on you to be successful.
The financial results are very important.
You can not expect to create a franchise of a single business unit. At least, you must have another two or three business units where the profitability of your company is demonstrated.
You should also do some market research to confirm that there will be demand for your products or services elsewhere. Investigate the market situation will let you know if you will face little or much competition.
Another aspect to evaluate is whether you, as an entrepreneur, are ready to be a franchisor. Can you face your new tasks successfully? You will have to take care of your franchises and support them in whatever you can, in addition to your current business.
Your financial situation as a business must be good to face the costs of creating a franchise.
You may also check this article: 10 Crazy tips to create your own online store
2. Learn about legal requirements
To legally sell franchises, you will have to accept certain regulations. It is likely that there is an entity in your country that is responsible for granting some permission for this activity.
Possibly, some organization has to evaluate your company to see if it is qualified to be franchised. This could also represent a cost.
In this sense, a great advantage would be to start with a consultancy with a lawyer or legal company that has experience in franchise business and your industry.
Meeting with an expert will clarify the panorama and you will know what documents you need to create your franchise.
3. Decide the conditions of your business
Once you know that it is possible to franchise your business and know what the necessary documentation will cost you. It is time to state the terms and conditions with which you will operate as a franchisor. You will have to make key decisions for your future.
Some of these decisions will have to do with:
- The place of the franchises
- The requirements to be a franchise
- The training and guidance you will offer as a franchisor
- The way you will promote franchises
- The initial cost of franchising and commissions
- The distribution or manufacturing of the products or services
- The period of time by which the agreement will be signed
- This part is of vital importance since those decisions will have a strong impact in the coming years.
The initial cost must be calculated carefully since this cost must cover the first months of your services as a franchisor while the number of sales increases. The percentage of sales revenue that you will receive must also be calculated accordingly.
Each point is important: imagine that you establish receiving 5% of sales instead of 6%, if in 4 years you already have 50 franchises and each one sells $ 500,000 a year, under an 8-year contract, you will be losing $ 250,000 every year!
The financial projection you make will help you determine your percentage. Remember that a high percentage will keep interested parties away from being franchised.
The place where the franchises will be established is also important, you should consider variables such as climate, local laws, size, a culture of the place, etc.
All these decisions will help you to have a beneficial expansion process.
4. Filter potential franchisees
The fact that someone wants to open a franchise in the name of your company, does not mean that it is the right one to do it or that you should allow it. A franchise represents your brand, so you must first have a system ready to take that business to success.
Enthusiasm is very common when it comes to doing franchise business. But you must make sure that you are the right person, you must be willing to work hard and be committed to your brand.
In addition to all the financial and legal information that you should have about potential candidates, you must know their career, their experiences, and their personality.
It will be someone you will deal with for many years and you will not want your brand to be in the hands of someone you can not stand. This person who will be the franchise must have that passion that you also had when starting your business and be willing to work responsibly.
It must be someone you can trust, who has a good career and has high expectations.
If you are in the process of attracting possible franchisees, you can use advertising. The best would be business magazines or sites like LinkedIn where you will reach the professional audience.
You can also attend important business events or conferences where you can interact with business people and investors. Another option is to hire a marketing company focused on the sale of franchises.
5. Establishes the operation system and its restrictions
You must have a support system already established for any problem your franchisees and their employees may have.
Part of becoming a franchisor includes having to add key personnel to support the franchises.
You will have to determine if you will use an in-house staff to support the franchisees or there will be an external group that will be in charge of this support task. This staff must ensure that quality controls and brand standards are met.
Depending on the type of business, a constant staff will be established or only a trainer will be hired when starting operations. This is why it is important to have other business units before franchising, to have a business replication method already established.
In addition to offering instructions on certain business practices, some freedom should be granted to the franchise, as well as certain restrictions.
After all, franchisees are also business owners where the franchisor does not have much to do with day to day, so they have some freedom in running the business.
The restrictions established in a franchise are made to preserve the identity of the brand and maintain quality control.
6. Monitor your franchises and keep growing
If you already have one or some franchises, congratulations! You are already a franchisor at this point. But it’s not about achieving it and going to sleep, you have to support and supervise your franchise network to keep growing.
The training program and support staff will create the necessary quality control so that the brand offers the same experience in all its business units.
Training for employees must be constant. As hundreds or thousands of employees represent your brand but perform in their own business unit, it is very possible to lose sight of the values and principles of the brand.
You must be regularly monitoring the performance of your franchises and the markets in which they operate. Each franchise will be different and will face various challenges.
The communication with the franchisees is of vital importance to maintain the business successfully.
At the same time, you must be promoting your franchise chain to continue expanding. The more experience you acquire, the easier it will be to continue growing.
The sky is the limit!
The franchises serve us to expand our business and obtain recurring income from businesses that no longer depend on us.
Your success is proven, and by following the steps I mentioned above, and with the help of the right people. You can expand your business around the world!
Did you already know how to create a franchise for your business? Leave me a comment below and tell me your experiences.
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