In my over 30 years experience in franchise consulting, people frequently ask me, “Why does one franchise program flourish while another franchise program disappoints?” There are many causes for succeeding or failing in your franchise program.
In this blog, I will address three Frequently Asked Questions about a franchise program:
Q. Why can’t I just call my program a licensing program and omit the documentation required for a franchise program?
A. Numerous court cases have determined a franchise program exists if it has these three fundamentals: 1) paying a fee (in some cases, even a fee as little as $500); 2) providing assistance; and 3) using the same name. You can call it whatever you wish — a license, distributorship, cooperative, association, join venture – if it has these three fundamentals, it will be deemed a franchise program. As a franchise program, your business must follow applicable federal and state laws.
Q. Why should I create a franchise program?
A. There are a number of reasons, including the following:
1. A franchise program allows you to expand your brand using other people’s time, money and managerial talents. As the growth of most businesses is limited by money, franchising typically can result in faster expansion than opening company-owned units.
2. A franchise program gives you the potential to make substantial profits through initial franchise fees, royalties, franchise real estate development programs and selling franchisees products or services. For example, a franchise program can generate per unit royalties of $50,000 to $100,000 or more annually.
3. You may be able to retain more ownership of your franchise company than if you utilize outside investors or venture capitalists for funding.
Q. What does it take to develop a franchise program?
A. In 36 states, you are only required to properly prepare a Franchise Agreement and Franchise Disclosure Document. In 14 states, you must register your franchise program with state regulators before franchising there. NFA also strongly advises you to create a comprehensive Operation Manual or Operation Manuals, spelling out all the details of launching and running the franchise location. In addition, you should develop a means of marketing your franchise program.
More next month!