Taking the step from owning and running a successful
business to franchising that business is the ultimate goal of any business owner. The process, while tricky, can take your company’s profits to new levels. Knowing when to make that step however is crucial and harms your business if it is not done correctly.
What is a franchise?
A franchise is essentially a business that sells businesses. Instead of selling your products out of your storefront, your goal would be to sell storefronts to other stores. Typically, this is reserved for a very successful business wherein there is a market to open more of the same stores. People will want to buy a turn-key mechanism for making the same profits that you do at your store. In order for them to be as successful as you, you will need to give them everything that you have in your store: all of the service marks, trademarks, licenses, operating manuals, recipes, training materials, and advertising materials.
When is the right time to franchise?
Everyone’s opinion differs on the question of when I franchise my company. The only right answer, in our opinion, is once someone makes an offer. The day someone walks in and says “I would like to buy a franchise of your store” is the day you call a franchise attorney. Before that day, you do not know whether or not there is a market for your franchise or whether or not it is recognizable as something that can be franchised. If you attempt to franchise before that day, you will likely waste money in advertising your franchise to prospective buyers, harming your business in the process. If you wait too long after that day, people may lose interest and you will miss out on the profit potential of franchising.
What do you need to make your first sale?
Once you decide it is time to start selling your company as a franchise, there are a few things you need to do before your first sale. Federal law and state law usually require a Franchise Disclosure Document which is oftentimes a large 50-300 page document detailing everything there is to know about the business. This document must be submitted to most states for approval before the first sale of the franchise. As a requirement of this document, you will also need to show at least two years of financial documents for your flagship storefront. If you do not have an accountant, you should get one as soon as you decide that franchising is in your company’s future. You will also need a franchise sale agreement which should be a standardized contract you offer to all potential buyers. These contracts can be very long and narrowly tailored to fit your particular line of storefront. It therefore follows that you will need to have an experienced franchising attorney for the majority of the process.