Franchising 101

1. Franchising is simply a method for expanding a business and distributing goods and services through a licensing relationship.
2. More than 120 diverse industries use franchising as their route to market.
3. In franchising, franchisors (a person or company that grants the license to a third party for the conducting of a business under their marks) not only specify the products and services that will be offered by the franchisees (a person or company who is granted the license to do business under the trademark and trade name by the franchisor), but also provide them with an operating system, brand, and support.
4. At its core, franchising is about the franchisor’s brand value, how the franchisor supports its franchisees, and how the franchisee meets its obligations to deliver the products and services to the system’s brand standards.
5. Great franchisors provide systems, tools, and support so their franchisees have the ability to live up to the systems’ brand standards and ensure customer satisfaction.
6. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy, and business advisory support from the franchisor.
7. The franchisee is responsible for the day-to-day management of its independently owned business and benefits, or risks loss based on his or her own performance and capabilities.
8. Franchisors and your fellow franchisees expect you will independently manage the day-to-day operation of your businesses so that you will enhance the reputation of the company in your market area.
9. Enforcement of brand standards by the franchisor is meant to protect franchisees from the possible bad acts of other franchisees who share the brand with them.
10. Franchising is highly regulated by the Federal Trade Commission.
11. The Franchise Disclosure Document (FDD) is a document the Federal Trade Commission requires be delivered to prospective purchasers of franchises.
12. All franchisors must follow a certain format.
13. Once you have read one, you will notice they all follow the same format.
14. The franchise agreement itself is an attachment to the FDD.
15. Please note, most franchise companies will not negotiate any part of their franchise fees or agreement.
16. What you need to understand now is the FDD is meant to be a disclosure document for your protection (the prospective buyer) and not a sales or marketing document.
17. 75% of franchises are still in business while only 25% of independents businesses are still operating.
18. Why do franchises have a greater likelihood for success? The reason is their proven operating systems.
19. Most people do not have excellent skills in all aspects of business. Franchising can take people from different backgrounds, different skill sets, in different geographic markets, and as long as they follow their systems, they have a very good chance of succeeding.
20. Franchisors have departments in charge of helping and supporting their owners with real estate acquisition, financial planning, software development, operations, marketing, sales, PR, purchasing, and training.
21. They have tested programs for sales & marketing to make sure they work.
22. A good franchise company has both great operations and marketing programs that drive in the customers to build a large-scale business.
23. Training programs are 1 to 3 weeks and are designed to train the new owner in all aspects of ownership in that business.
24. Franchise fee is a onetime upfront fee and is used to recruit, train, and educate you to start your business.
25. Territory fee is often built into the franchise fee protecting your market.
26. Royalties from their franchise owners is where franchisors will generate revenue – either flat fee or % of gross sales, collected weekly or monthly. This ongoing fee is for the leverage of the franchisor’s trade name, operating methods, and industry research.
27. Marketing or advertising fee is used to expand their marketing and advertising expertise.
28. Investing in a franchise or becoming a franchisor can be a great opportunity. But before you select any franchise investment and sign any franchise agreement, do your homework, understand what the franchise system is offering, and get the support of a qualified franchise lawyer.