View Full Version : Turning your business into a franchise.

08-01-2010, 09:03 PM
Does any one have experience with turning a small business into a franchise? If so are you willing to share. We have started to expand into other markets, and are getting to the point where we could use some help. One option is to hire somes to handle the new areas. The second is to set them up as franchises. Any suggestions?

08-02-2010, 12:50 AM
This is more general thoughts than any real experience. You might want to first expand by opening a second store yourself and hiring people to work it. If people see a few of your stores around town I think they'd be more likely to consider owning a franchise. I don't think you have to go this approach, but it seems like the more natural next step to me.

With a franchise you need to prepare a lot to help make the franchisee successful. You'll likely want to put together documents and training for running the business. Your brand and any combined marketing you do for all the stores will also be big selling points. You have to make it worth the price you charge to buy into and stay with the franchise otherwise people would be better off just starting a new business. That's why I'm thinking owning a second store and then a third with you retaining ownership and hiring employees might be the better first step. After you have a few stores going with good people running them you can approach those people and see if they'd be interested in buying the stores they're running as part of the franchise.

Again just some general thoughts.

Business Attorney
08-04-2010, 09:52 AM
You have to be very careful with franchise laws. It is nearly impossible to do it correctly without an experienced franchise attorney.

02-17-2011, 09:57 AM
i just cant go there....but so many have told me our store would do great in their city....apparantly we have a very wierd mix that few have tried..... i know its true when so many from cities are sopositive about their feelings about the store....
i really feel like if i were more like my millionaire friend i would figure this out....i feel like its a huge opportunity im not looking at....
i cant even manage opening a second store...and others do it so casually.... im too old to even be thinking like this....and i hardly ever feel too old...
guess i will read thru this topic...

02-17-2011, 05:14 PM
Are there any new franchise businesses starting up, these days? Maybe the heyday is past -- The successful ones have been around a long time. McDonalds, Ace Hardware, UPS Store etc. seem to be from another era.

About 20-30 years ago, franchising was the latest scam industry and everybody and his brother was franchising something. The authorities (SEC? FTC?) brought in some very restrictive consumer protection laws and stopped the exploitation. Now? I guess businesses are franchising still but I believe it costs an awful lot to prepare your business for a franchising, you have to be squeaky-clean on all counts and I'm sure there are plenty of hoops to jump through.

But that's good - I'm sure there is a demand for franchises and starting a business that is in demand always makes sense.

Make sure you do your homework. And get a specialized franchise lawyer.

Steve B
02-17-2011, 10:52 PM
You may want to sell the idea as a business opportunity instead of a full blown franchise. I'm in the early stages of investigating this for my two businesses. I wish I could find an experienced advisor to guide me through the steps, but I haven't been able to find anyone yet.

02-17-2011, 11:47 PM
its so intriguing...id like to hear what you find out or come up with.....
. you have to think about how much of your thing is you.. and what if they invested, what it would take....a lot in my case,... and then ignored the key ideas and failed...and who would you be the financially responsible person...
im kind of looking for some way to open up another place....but dh is not for it...and i cant figure out a staff anyway.... for us it would take at least 4 really competent people...and a truck....

05-31-2011, 01:05 PM
To me, being a franchise owner seems like risky business. The very successful ones like McD's aren't open to new franchisees, and even if they were the capital requirements are steep. A lot of other franchises have come and gone with the franchisee on the hook for whatever they 'agreed' to in their contracts. In the last few years numerous franchised restaurants were closed around here - including Bennigan's, Ground Round, Fatburger etc. - but I'm sure whatever SBA or other outstanding loans on these ventures still come due.

Aside from franchising, do you have the capacity to serve a larger market with your current setup?

05-31-2011, 04:49 PM
This is a very long and painful process. I helped a client who wanted to do this. I had know knowledge prior to helping them and I was in over my head and I am generally pretty good with government paperwork and how things are done. There is an application to complete. This part is fairly simple, just detailed. The painful part is that the government requires you to give a COMPLETE book of how your company runs. Extremely detailed. They ask for it to be at least 200 pages! This includes EVERY aspect and detail of your company.

Example: Subway is a franchise! Their franchise book has to explain everything the company has to do from book keeping, customer interaction, food handling, company uniforms, wage data, hiring and firing, company structure. Everything down to how the inside and outside of the building looks. Even things like if your employees wear nametags or not and how they look! I had to write one of these out for a client for a VERY basic company structure and it was around 230 pages.

They also require ALL accounting info including all cost, profit for several years. Again this has to be as detailed as possible and for as far back as possible.

After that there is more paperwork and after all of that it can still get denied. Many franchises are denied. I forget the % offhand. Something like 80-90% of companies get denied to be franchised.

I know there is more, but that is some of it to think about getting together before you even start the paperwork. What I did to get an outline to build the franchise book was use their business plan and business model and expand on it in detail.

Good luck! Would love to hear how it works out!

12-22-2012, 12:05 PM
I’ve “franchised” businesses myself and have helped others. So here are a few comments.
Don’t be afraid to franchise. Many, many small businesses have followed that path.

Assuming all the “business” aspects are in place, successful model, etc. the actual steps to becoming a franchise are very standard and not nearly as difficult as you may think.

As someone mentioned you need the main legal document, the FDD, or Franchise Disclosure Document. This document is a format prescribed by the FTC that simply assures full disclosure of all aspects of the offering. It’s long and tedious but pretty much boilerplate. It doesn’t require actual FTC review. You must also follow some relatively easy procedures such as allowing 10 days before you can accept a franchise fee. Actually, other than having created the format, the FTC has little to do with franchises. It isn’t reviewed or approved by the FTC. However, if there are enough complaints they will prohibit you from further franchising.
The real importance of complying with the FDD is simply that if you are sued by a franchisee and your FDD is not prepared properly you automatically lose.

It is the states that you really have to deal with. Most states have very little oversight regarding franchising. Most states do not even require that you submit your franchise (FDD) for review. There are some states that do have more rigorous regulations and do require a review and approval. The toughest is California. Florida on the other hand just requires a $ 100 annual fee, without ever reviewing your FDD. Again, it’s the courtroom where the FDD is critical.

An FDD can be prepared by Franchise attorneys for less than $ 10,000. It’s the larger “Franchising” companies that are expensive. You can save a lot of money by simply addressing the various issue yourself, prior to hiring an attorney. You can actually prepare your own FDD and then have an attorney review and edit. I’ve done that myself.

The hard part is marketing! Even assuming it is a profitable business, selling franchise opportunities is very difficult and extremely competitive. That is a whole other discussion.

More difficult than the legal documents is the operating manual.

The process may seem complicated, but in reality it’s a standard format that is just tedious.

05-15-2013, 05:37 AM
If your business lead is familiar among the public to a certain area of your operation or beyond the area of operation or your customers are more in the area you are looking for, may need to open a branch office. It is better than franchising. Royalty would very lean than the direct marketing profit. More business people are expecting franchise for familiar products and brands.