Franchising has now been going strong for more than 50 years. Why does it work? For would-be franchisors, it is a way to expand with other people’s money and human resources. For franchisees, it is a way to get into business without having to reinvent the wheel or go it alone. Of course, like any business venture, there is no guarantee of success for either franchisor or franchisee, and each should understand what they are getting into before setting out on this path.
If you are considering franchising your business, there are extensive materials on this blog that can help you determine whether your business is a good candidate for a franchise. Bear in mind, however, that while the attraction for entrepreneurs to franchise their business is the ability to expand using other people’s money and other people to operate the business, one of the biggest mistakes would-be franchisors make is to think they can build a successful franchise with little capital and a bare-bones staff. To the contrary, you will need capital for many purposes, from designing training programs and operations manuals to hiring legal counsel to prepare your franchise agreement and the disclosure document needed to comply with federal and state franchise laws. Since most entrepreneurs that consider franchising also have their own existing business to operate, you will also need additional staff, either to take over your existing business while you concentrate on franchising or to guide the franchise process for you.
If you are a would-be franchisee, you need to understand that there are no guarantees in franchising. Franchising offers you the ability to acquire a successful business model, with a proven track record, and direction in operating your business, but in most systems, you still have to find a good location and build out the business (presumably, using the franchisor’s guidelines), and in all cases, you must still operate the day to day business. Before purchasing a franchise, do your due diligence on the franchisor and be certain they have a successful model and have created training programs and operations manuals to guide you in your operation of the business, as not all franchisors are created equal. The Franchise Disclosure Document you will receive from the franchisor is a good place to start your research but talk to other franchisees, and qualified advisors, to assist you in determining whether the franchise is right for you. It is also important that the business be something you are interested in operating, because at the end of the day, you are the one working every day in the business, and the ultimate success or failure of the business will depend on your efforts.
Franchising is a business model that offers “win/win” opportunities to would-be franchisors and franchisees who understand what they are getting into, and do their homework. If you are interested in becoming a franchisor, we can help you structure your franchise program in a way that protects you and complies with all franchise legal requirements. Our contact information is on this blog. While we do not represent franchisees, those interested in becoming a franchisee should seek out legal counsel experienced in working with franchisees to advise them and help them review the franchise documents they will receive from their prospective franchisor.