Are you new to franchising? Don’t worry, we have got it all covered. If you wish to franchise your business to a third party, we have got the whole process from start to end to guide you through the path of success.
A franchisor is an individual or a company granting a license to a third party for conducting the business of the franchisor under his/her marks. Even though the franchisor is the original owner of the business owning all the rights and trademarks of the company, they allow the franchisees or the third-party to use those rights and trademarks to function and do business.
By charging an up-front franchisee fee for the use of rights and trademarks, the franchisor usually collects the ongoing franchise royalty fee from the franchisee for every item sold. Let’s check out the steps involved in becoming a successful Franchisor in the market.
How to Become a Franchisor?
After taking the decision of franchising your business, all you need to do is follow these important steps to become a franchisor in the market.
Step 1: Register Your Trademark
In case you have not registered your principal trademark in order to obtain the federal trademark registration, this will be your first step towards becoming a franchisor. While it is important to protect your business elements during the set up of the company, it is never too late.
Trademark is one of the most important elements of the business and it is necessary to protect it from any kind of malicious misuse. Also, if you have not adequately registered other important technology or trade secrets essential to your company’s operations, now is the time to do so.
Step 2: Prepare a Financial Model
Once your first franchisee is open to the market, it is not unusual that your business volume is relatively low in the initial phase of opening. This means you need to keep a check on the franchise fee revenue which will most likely be low in the beginning.
Your plan as a franchisor should include preparing a financial model demonstrating the flow of revenue including how you and your franchisee business can both make a profit over time in the market.
Step 3: Documents Required
A franchisor needs to prepare a franchise agreement and a Franchise Disclosure Document (FDD) defining the relationship and outlining the obligations and duties of both, the franchisee and the franchisor.
FDD and the agreement contains-
- territory rights
- e-commerce obligations
- history of the franchisor
- franchisor’s predecessors and affiliations
- contract provisions
- fees and costs involved
- all other information about the franchisee
This agreement stands for 5-10 years and sometimes longer than that. The US government encourages the franchisees to sign the FDD before signing the franchise agreement or before paying any money related to the franchise agreement.
Step 4: Conduct Audits
This step depends on the state in which the franchisor operates. A financial statement is required which can be conducted in terms of audits before the commencement of the franchise. With the presence of a franchise consultant or a franchise attorney, there financial statements are prepared upon their advice.
Step 5: Legal Registration
With different legal procedures in every state, some states require the franchisors to register the franchise before soliciting potential franchisees while other may require the franchisors to file notices in order to avail themselves of exemptions, or to get hold of the business opportunity.
It may take around 30 to 90 days from the FDD registration, for approvals needed from various states.
Step 6: Recruiting & Training of Franchisees
To set up the tone for growth and success, it is a franchisors duty to recruit, train and motivate a capable set of franchisees. Franchisors need to conduct a training program to teach the initial recruits about launching and operation of a new business.
Not only this, franchisor is also required to train the key franchisees at all times according to the changing dynamics to stay successful in the long run. For this, franchisors must organize annual conventions and meetings for regular training and updated on system developments.
Step 7: Market Your Franchise
It is an essential step to build awareness and interest in the minds of the consumers. Advertising your franchise correctly and passionately increases the visibility of the business in the market and make it stand out from others.
Franchisor should keep a separate funding tab for advertising as a major part of the franchise plan for easy growth and success.
Step 8: Develop a Strong Vendor Program
In order to develop a strong brand, the franchisors need to make sure about the consistency of the products and services being offered to the target demographic. In a franchise system, it is the duty of a franchisor to maintain control over the vendors with whom the franchisees are doing business on a daily basis.
To be apart of the vendor selection process involves solving various issues and exercising a degree of control in situations where the franchisor needs to act as a chief if required.
Step 9: Ensure Easy Flow of Communication
In order to be a successful franchise, it is essential to establish flowing channels of communications between the franchisor, franchisee, vendors and the end users. It is the most difficult step in building and maintaining a smooth franchise system.
As the system grows in size, it is difficult to maintain a sound channel of communication between the top executives and every franchisee in the business. Therefore, to establish an easy flow of communication by developing effective channels helps in the growth of the system and makes it easier for the franchisor to gather feedback and avoid dissatisfaction among the organization.
By following these above-mentioned steps with utmost focus and dedication, no one can stop you from becoming a successful franchisor with a great profitable franchise business and trained capable staff to satisfy the consumer needs.
So, what are you waiting for? Start the process of becoming a franchisor and widen the horizon of your business and profitability in the continuous booming market of the United States.