The decision to start a franchise should not be taken lightly, but it can prove to be very financially and emotionally rewarding. I’m going to discuss some of the steps you should consider to ensure your franchise succeeds.
Step 1: Understand What a Franchise Is
Before you begin, you need to understand the meaning of the word franchise. The term signifies a legal arrangement in which one party called the franchisor grants the rights to market products or services using the trademark of their business to an individual or group of people called the franchisee. The franchisee can then market the products or services using the methods specified by the franchiser. In return, the franchisee must pay the franchiser specified royalties and fees to use these rights. Rather than an actual business or industry, franchising is a method businesses use to market and distribute their products or services. Both parties share an interest in ensuring the company succeeds.
Step 2: Review the Benefits of Franchising
Another step before you actually decide to franchise your business is to list all the advantages. Consider that you will be able to expand much more quickly and less expensively by franchising. Another advantage is the fact that the more franchises that exist, the greater your purchasing power. If you are considering purchase a franchise, you can fulfil your dream of becoming self-employed and start running your business more quickly. As a franchisee, you will normally gain valuable ongoing support, training and advice from the franchiser. Raising finance to purchase a franchise is also much easier than raising the money to start your own business.
Step 3: Consider the Disadvantages of Franchising
Like any business venture, starting a franchise has its disadvantages. As a franchiser, you will lose a significant amount of control over your business. As a franchisee, you will lose creative freedom as you need to follow the requirements established by the franchise owner. You also have to pay a certain percentage of your profits to the franchiser.
Step 4: Requirements to Set Up a Franchise
You need to investigate the particular requirements to start a franchise in your country. The legal requirements vary greatly, depending on where you live. For example, the British Franchise Association requires that all franchisers possess at least one year of experience running a business before they can franchise. If you are a franchisee, you should consider a pilot operation that has an audited set of accounts. This makes it easier to evaluate if the business is going to be profitable.
Step 5: Intellectual Property Rights
At the beginning of the franchise agreement, the franchisee will obtain a package outlining all the intellectual property rights. It’s important to ensure that the franchiser’s rights are protected. The intellectual property may consist of a trademark, patent, registered design or copyright. The franchise agreement will specify exactly which licenses will be awarded to the franchisee and how they can be used.
Step 6: Operating Manuals
If you are planning to start a franchise, you need to obtain a detailed operating manual. This document will outline the essential information the franchiser has gathered while operating the pilot scheme. The manual will disclose any relevant information necessary to run the franchise successfully, including sales, reporting, equipment, marketing and accounting requirements. This document contains valuable information about the business. Hence, the franchise agreement will normally specify that the contents remain confidential and are never shared with any third parties.
Step 7: The Premises of the Franchise
You need to determine if the franchise you are planning to start is mobile or property-based. Some franchises may be run from your own home, whereas others are operated with customised vans. The location of the business may be crucial in the development of the franchise network. Hence, the franchiser may choose to retain control of the premises.
Step 8: Establishing a Franchise Agreement
If you are considering offering franchises, you have to prepare a franchise agreement. This document will permit the franchisee to run the business according to the specified legal obligation and intellectual property rights. The agreement must meet local law requirements, and it should protect the franchiser and present a workable document to the franchisee.
Step 9: Determining Franchise Fees
Before starting a franchise, you need to determine the fees involved. As a franchisee, you will be required to pay an initial fee to the franchiser for the privilege of joining the franchise network. Franchisees may also pay management fees, although they are sometimes included in the wholesale price of the product. Lastly, the franchiser usually receives ongoing royalty fees that represent a specified percentage of the profits.
Step 10: Understanding the Obligations of Both Parties
As a franchiser, you are obligated to provide support, training, a detailed operating manual and a franchise agreement to the franchisee. You also agree to promote the brand and to avoid competing by not granting other franchises in the same area.
As a franchisee, you must run the franchise business according to the guidelines established in the manual and the rights specified in the franchise agreement. You are responsible for keeping proper records, obtaining insurance, ensuring confidentiality, complying with intellectual property rights and maintaining the franchise premises.