Let’s begin with the basics. To understand what we’ll be talking about in this blog
post, you must first know what defines a Franchise.
Franchise.org defines Franchise as a “method for expanding a business and
distributing goods and services through a licensing relationship”. These
relationships are defined by the franchisor (the entity or person granting the license to a third party to conduct business under their trademark) and the franchisee (the third party who is granted the license to do business under the trademark by the franchisor).
In layman’s terms, McDonalds Corporation is the franchisor and you, as the
interested party who wants to own a fast food restaurant would be the franchisee.
Carrying on, although it doesn’t get the spotlight it deserves, Franchising can be a
very successful business venture in the long run. As a franchisee, you can own the rights to a company and manage, promote, etc, without all the hassle of opening your own company and the possible headaches that may come with it. The Franchisor will give you all the training and the marketing. You’d make a profit off of having other business minded individuals promoting and running your brand domestically, nationally, or internationally. Of course, you’ll find that there are a lot of factors to each one but we won’t get into that today.
So, the bigger question is, when or why should you consider franchising and
becoming a franchisor
Entrepreneur claims that the main three reasons to franchise are lack of funds,
people, and time.
[su_pullquote align=”right”]Franchising allows your company/brand to expand with without the risk of debt or the cost of equity. Other potential business owners will expand your brand with their own money.[/su_pullquote]
LACK OF FUNDS: Franchising allows your company/brand to expand with without the risk of debt or the cost of equity. Other potential business owners will expand your brand with their own money.
LACK OF PEOPLE: As a business person, no matter what side, you have probably
encountered the difficulty of hiring dependable and knowledgeable staff. As a
franchisor, this task would fall on the franchisee as long as they follow the rules and regulations outlined in the Policies and Procedures Manual of the franchise. All of the headaches of training and leading staff falls on the franchisees.
LACK OF TIME: Let’s face it, it takes time to find another location, modify it to fit
your needs, find caring and competent employees, purchase equipment and
inventory, etc. Becoming a franchisor eliminates this in the aforementioned reason. The franchisee invests the time in the prospective business.
Fantastic, you now understand the benefits of franchising… lightly. Now, when do you know you’re ready? Here are some things you should have in place before
1. The concept/brand needs to be unique. Is it marketable on a wide scale?
What makes it stand out from its competitors? Can it hold up on its own in
2. Will it generate a worthy ROI (return on investment)? Can the franchise
return up to 20% or more on investment after the royalties for the
3. Is there a polished Policies and Procedures in place to run the business as
you would? Could the franchisee learn the in and out of how to manage the
franchise just from that? Can they do it in three months or less?
4. Finally, is your Franchise credible? Have you achieved success at the first or
other locations? Has the name/brand grown in an exponential manner
through local or public credibility? Has it proven that it works?
The “When” of this conversation essentially falls on whether or not your business has the mentioned factors in place. If it does, then the following step would be acquiring the legal documentation to move forward. A business attorney would be the best option as they typically have the manpower and resources to make sure all the legal documentation and supporting documentation is drafted and executed. There are hundreds of issues that must be addressed before moving forward but it can be the most profitable outcome for your business. Once you’ve got all the necessary things checked off your list, you’re ready to begin selling your franchise to worthy franchisees.
Have you thought about franchising before? We’d love to hear about your
experience! The EPGD Law team is happy to help guide any business owner or
entrepreneur, down the path of success through legal guidance and support. You
can reach us directly through firstname.lastname@example.org or (786) 837 – 6787.
Disclaimer: This blog post is not intended to be legal advice. We highly recommend speaking with an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.