Franchising enables the rapid expansion of businesses and their market shares. However, it also requires significant consideration and preparation. Due to the regulatory requirements, prospective franchisors should seek the help of a reputable franchise law firm.
Deciding To Franchise
Franchisors essentially open new companies that sell and provide support for their franchises. In addition, business owners adopt significant financial risk because much of their monetary and staff assets are diverted to marketing and selling the franchise opportunity and helping franchisees set up and maintain their businesses.
Therefore, prior to franchising, businesses must be strong and profitable, and potential franchisors must know everything about the businesses. In addition, the business should be evaluated to ensure its model, product and/or service is different from its competitors yet easily replicated without the owner’s direct involvement. Market research should be conducted to ensure sufficient demand in other locations. Finally, staff and other assets should be sufficient enough to support franchisees.
Prior to the legal process, business owners should have a basic idea of their franchise structure. For example, what initial franchise, royalty and marketing fees will the franchisees pay, and are these fees high enough to make franchising profitable but sufficiently below profit margins so prospective franchisees are enticed to invest? In addition, business policies and procedures, including hiring, training and daily operations, should be written out. Key staff and other asset requirements should be identified. Finally, the support offered to franchisees, including supply chain or vendor sourcing and employee or manager training, should also be explored.
Franchises, which are governed by the Federal Trade Commission, must comply with significant regulations. In addition, since franchisees will use company trademarks, these should be investigated. Reputable law firms can also help business owners with franchise contracts, fee schedules, disclosures, litigation and transfers or terminations.
If you have a strong business and desire expansion, franchising may be the solution you seek. However, carefully consider this decision, prepare your business and staff for the transformation and seek legal guidance during and after the franchising process.