How to Create a Franchise: Everything You Need to Know
Learning how to create a franchise lets you make money from your brand and other individuals called franchisees.3 min read
Learning how to create a franchise lets you make money from your brand and other individuals called franchisees. The owner of the franchise is the franchisor. A franchise will let you open more locations and reach a larger audience. Brian Tollefson, founder and CEO of Tikiz Shaved Ice & Ice Cream, said, "A company that is franchised is built and operated entirely differently than most businesses." You should understand the franchise business model before deciding to franchise a concept. Franchising a company requires time, effort, and money.
What to Remember When Creating a Franchise Agreement
A franchise agreement should be legally binding for all your locations. Additions to agreements can let franchisees negotiate details specific to their location like territory. The franchise disclosure document or FDD gives potential franchisees everything they need to know, including your sales figures. You should update it every year to comply with requirements from the Federal Trade Commission or FTC and some states.
Evaluate your success, make smart decisions, and hire the right people to help you before you expand. Building a franchise is a challenge. It must be profitable, service an active market, and include easily duplicated systems. Opening multiple locations is nearly impossible without help. A franchise consulting group can take care of tasks like:
• Writing and printing manuals
• Using marketing tools
• Updating your FDD
• Daily Operations
A lawyer can help you compile a sound FDD, protect your intellectual property, and follow local regulations. Use a broker to find new franchisees. Large franchises often require their members contribute to a common marketing and advertising fund. This can be a set amount or a small percentage of revenue.
Types of Franchises
There are many types of franchises. Here are some examples:
• Kids' entertainment or education
• Cleaning companies
• Repair companies
• Gyms or yoga studios
• Massage and spa treatment providers
Starting Your Franchise
You'll need to complete some essential steps to start your franchise:
1. Learn your budget so that you can look for opportunities within your price range.
2. Do your research to avoid wasting time on a franchise that's not a good fit.
3. Reach out to current owners for information and a mentor.
4. Participate in in-depth interviews to find out details about setup and training.
5. Sign the franchise agreement.
6. Pay the franchise fee and any other expenses.
7. Renew your agreement when it ends to continue your business relationship.
What You Need to Be Successful
There are no shortcuts. You'll need a strong system that makes it easy to manage products and services. You'll also need a demand significant enough for all your locations. They should be close enough to visit, but away from your original store.
Make sure your business makes sense, and then help your investors and franchisees succeed. Your brand represents your business's culture. It's your most valuable asset. Franchising lets new people represent it, so you should establish clear guidelines. Monitor news outlets and social media to help protect it.
Typical First-Year Costs
David Busker, a franchise consultant for FranChoice National Network, warns that "Franchise fees can be overwhelming, but they're crucial to developing your brand and a network of owners." They should be competitive with similar brands and franchises. Franchisees compare brands in many categories and industries, and the fees can be responsible for a large part of expenses. Discounts for people with multiple units are often available. After paying a one-time fee of $25,000 to $50,000, there's often a continuing fee or royalty as well. The amount is usually a percentage of gross revenue. Here are some additional common initial costs:
• A feasibility study - $3,500 to $7,500
• Your franchise disclosure document and license agreement - $20,000 to $35,000
• Training manuals - $15,000 to $50,000
• A marketing plan - $7,500 to $15,000
• Sales training - $10,000 to $20,000
• Registration for some states - $250 to $750
• Legal fees for state and federal registration - $15,000 to $25,000
• A federally registered trademark - $1,750 to $7,500
• Establish a new legal entity - $0 to $13,500
• Advertising for franchise buyers - $15,000 to $120,000
• A franchise development manager and additional staff - $0 to $200,000
If you need help with creating a franchise, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.