Franchising: How to Expand Your Small Business

by Startacus Admin

Thinking about taking your startup down the franchising route? Here are a few of the key things you'll need to consider

Have you considered franchising your business? Franchising is a legally recognized business agreement between a franchisor and franchisee. When done correctly, it allows you to expand your business by selling the right to use your trademark, business practices, training methods, and network support to a franchisee.

How do you know if franchising is right for you? If you have the capital to expand your business but are limited by the constraints of running your business, franchising allows you to spread your business through other business owners.

Let’s dig into the steps you need to take to franchise your business.

Federal and State Franchising Laws

In the US, franchising is regulated at the state and federal levels. Therefore, you must create a legal foundation for your franchise in the form of a Franchise Disclosure Document (FDD).

The FDD contains twenty-three sections that comprehensively break down the nature of the franchisor-franchisee relationship, the legal requirements and obligations to be met by both parties, and other important information. The FDD is designed to make the relationship perfectly clear and is updated and resigned annually.

Despite the regulatory requirements, FDDs can differ vastly between franchises. Some relationships are very hands-on, and others are very much hands-off regarding the parent business’s involvement in their franchises. 

What Steps Come Next?

After drafting an FDD with a franchise lawyer, there are other preliminary steps you need to take before selling a franchise.

Draft an Operations Manual

An operations manual is the defacto rulebook for running your franchise. This is the sacred text for any franchisee looking to operate one of your franchises and needs to cover every aspect of operations and then some.

Because business practices grow and evolve, the confidential operations manual will be a constant work in progress. Don’t expect it to be a one-and-done deal! Its scope and coverage will reflect the growth and maturation of your franchise.

What Should Be Included in an Operations Manual

1. Confidentiality Agreement 

This section should outline the legal consequences if confidentiality is violated.

2. Brand Introduction and Philosophy

This section should describe the culture and operational philosophy that your franchisees should adhere to

3. Franchising Roadmap

This section should contain a detailed projection of timelines and milestones for running a successful franchise.

4. Training and Operations

This section should cover an in-depth look at hiring practices, training methods, and the routine procedures for running day-to-day affairs. It should also include management strategies and suggestions for what to do when things go wrong. Additionally, it should describe the nature of the supply chains and external business relationships with vendors, suppliers, and other parties. 

5. Marketing and Business Development Strategies

This section should cover how to promote, market, and grow the franchise. It should break down social media strategies and standards of practice.

6. Your Industry-Specific Suggestions and Experiences

You’ll also want to provide tips, suggestions, stories, and experiences that you have encountered. This is a miscellaneous, catch-all section that will pertain to the specifics of your particular industry.

You Must Take Steps to Better Protect Your Trademark 

The laws surrounding protected and unprotected trademarks can be a bit overwhelming. For example, you may have common-law trademark rights for your region, but these protections are weaker nationwide and almost non-existent overseas.

To get better protection for your trademark, you need to register it with the USPTO or the United States Patent and Trademark Office. Though this improves your protection from trademark infringement, it doesn’t guarantee 100% protection.

For example, if a business in another part of the country was protected under common law and existed before you filed your trademark with the USPTO, they may not be in violation of the law if their name or logo was the same as yours. In fact, you may be in violation of their regional trademark.

Take Steps to Police Your Trademark

You have to take it upon yourself to make sure other businesses aren’t infringing on your trademark. This is where the help of a trademark attorney can help make sure your business’s brand is as protected as it can be under the law.

You Need a Second Business Entity to Manage Your Franchise

The next step before filing and registering your FFD in the states where it is required by law is to establish a second business entity whose sole task is the management, marketing, and growth of your franchise. This second business entity needs to be operationally distinct from the progenitor business. The reason for this is apparent once you think about it:

Managing, marketing, and growing franchises is its own business, separate from whatever industry the franchises operate in.

The Process is Involved, But Can Very Rewarding

The whole process from initial conception to selling your first franchise takes anywhere from 90 - 120 days when done correctly. Setting up a franchise is a valuable way to grow your business and can be well worth the few months of grind necessary to set it up correctly.

If you think becoming a franchisor would help your small business grow, you now have the knowledge to begin the process! There is no time like right now!

About the Author

Veronica Baxter is a writer, commercial real estate realtor, and legal assistant operating out of the greater Philadelphia area. Veronica is your go-to real estate consultant for commercial properties, from cap rates in commercial real estate to real estate investment options. 

 

 

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Published on: 16th July 2021