What You Need To Know
You’ve grown your business to a successful point and are now considering expansion. Congratulations! The most important question is “Which structure is right for my business, temperament and risk tolerance?”
Will you choose. . .
- multiple company-owned locations, wherein you will be responsible for all business and operations aspects of each location?
- certification program, allowing others to become certified to utilize and sell your products or services within their business?
- license the rights to your business opportunity? (not recommended in most instances, click here to read why.)
- franchise, keeping you in legal compliance and allowing you full control over your brand and intellectual property usage?
These various structures are far more than simple semantics. Many people inappropriately call their business “licensed” to avoid expenses. However, if legally it should have been categorized as a franchise, it will be much more costly in the long run when they get sued for selling a disguised franchise. Remember, if it looks like a duck and quacks like a duck…it’s probably a duck! We suggest that you consult with a franchise development firm as part of your decision in order to avoid expensive legal liabilities down the road.
By the nature of state and federal laws, most businesses will fall within franchising parameters. Franchising is not as simple as hiring an attorney, drafting Franchise Disclosure Documents (FDD’s), drafting an operations manual, and the appropriate state and federal filings. Those steps are absolutely necessary, yet those legal agreements can be full of loopholes and missing components if they are not based upon a well thought out and well-designed franchise strategy and business model. You’ve worked too hard to grow your business. Do not jeopardize your pride and joy by taking shortcuts!
How do you find the right company to take you through the franchising process? As a franchise developer who has been instrumental in successful national and international franchise expansions, here are several questions that we recommend you ask when interviewing prospective franchise development firms:
How do you charge for your services? Run away from the companies that charge a percentage of your business, royalties or future franchise sales. Additionally, there is no need to pay large upfront fees before starting the process. You should be looking for a company that clearly outlines their services, is willing to customize a plan specific to your needs, and is reasonably flexible with payment options. Remember to ask if there are fees that may not be included in their services. You don’t want to enter into a contract and then be surprised by additional fees that were not in your budget.
Does your company sell franchises? If yes, while on the surface it sounds good, this is NOT in your best interest in our opinion. A company that develops franchises and sells them often will spend their efforts making the offering sound good to a prospective franchisee because they will profit on the sale, not however, on your long term success. You want a company that places an emphasis on the success of the franchisees. If this is not kept top of mind in the development process, you risk high turnover in your franchise, which will make it difficult to sell units in the long run. Remember, you are required to disclose all current AND PREVIOUS franchisees to a prospective buyer.
Who will be preparing the franchise documents? Many franchise development companies prepare these documents using a cookie cutter template, which means they are not necessarily drafted to your preference and the uniqueness of your specific business. Additionally, any franchise development firm that advises their clients in drafting these documents without the use of attorneys, either in-house or outsourced, could be in violation of unlawfully practicing law.
After the initial franchise development stage, what type of ongoing support do you provide? Many franchise developers are interested in your business through the initial development process only, however they offer very little in the way of ongoing support for a continuously growing business. Ongoing support to look for: training for all levels of your franchise, technology, legal, financial management and marketing support. Your relationship with a franchise developer should be taken seriously. If you have carefully selected your developer, you should enjoy the benefit of a long-term supportive business relationship. If they are not interested in an ongoing relationship, this is a huge red flag and may indicate a lack of understanding of the franchise world in total.