In its simplest definition, a franchise is a permission that allows other people to use your name. In business, it is a grant to use not just your brand name, but all the things that come with it. It includes a list of the products or services you offer, your know-how trademark, your logo, and more.
A franchise business does good both for its franchisee and for the franchisor. In the franchisor’s side, the benefit falls in allowing its business to expand by using other people’s money. For the franchisee’s point of view, the convenience of having a finished system will save you from starting everything from scratch.
However, it is not as easy as how it appears to be. Here are six things you need to know before wallowing yourself in. For the financial side of this, cost analysis at franchiseknowhow.com is readily accessible.
1. Validate Your Business Model
A business model is the principle or philosophy of an organization or business in delivering value to its consumers. A good business model should not be easily copied and duplicated by others. Thus, you should make sure that as a franchisor, your business should possess a fair advantage to your potential franchisees.
2. Proof Of Demand
To convince other people to franchise and invest in your business, you need to showcase your business’ capabilities. Presenting your strengths and displaying a proof of your business’ success and sustainability is a way to attract other entrepreneur’s attention. Solid pieces of evidence include your financial, marketing, and operational reports to show the current state of demands of your service or product.
3. Demonstrate Success
This can be done by showing how much you usually earn or your net profit every month or week. Attractive franchisors have already established some branches of their business. Having numerous offices indicates that the company is doing well. If your business had come this far and you wanted to franchise it, doing a pilot franchise might help you.
A pilot franchise is a trial operation which gives the franchisor an opportunity to iron out any possible issues. Possible issues may include problems in the service, training processes and programs, and any other complications that may arise.
4. Not For Everyone
Venturing out in business is a risky thing to do, be it a franchise or not. Before you decide if you are willing to manage more subsidiaries or open your company for a franchise, know your risk tolerance. Opening your business to a franchise model is accompanied with additional responsibilities on your shoulders. Try to balance everything out and examine closely if you are willing to take the risk that goes with it.
5. Consider The Agreement
Both parties should understand the franchise written agreement before the signing. It is best to seek for a legal advisor or franchise expert’s help before coming up with your final document. A franchise written agreement should include all the necessary information needed to be covered. Here are some of it:
- Starting date, Territory restrictions, and other similar privileges
- Protection of patent, trademark and other intellectual property
- Employees’ training procedures
- Quality standards
- Cases of levant, injury, and other complaints
- Duties and responsibilities upon the termination or expiration of the contract
- Compensation or any harm or loss
- Security and protection
6. Your Financial Foundation
One vital factor that you need to consider is your economic status and capabilities. Franchising is not the same as any of your collective knowledge about traditional partnerships. The expenses which may cost you in the foundation and setting up your franchise business can be costly.
You might need a professional and certified accountant to make this secure and as smoothly as possible, if you are not one yourself. You don’t want to make a mess while building your financial foundation. Here are some of the necessary expenses you will soon encounter in franchising your business.
- Trademark registration
In redesigning your business and opening it to the public, you need to think about the protective gears. This includes the step in trademarking your brand. That way, no one is allowed to claim your brand anymore.
- Legal fees
You need to pay for legal assistance in writing your franchise written agreement, as well as the other legal concerns you will be needing.
- Franchise Disclosure Document or FDD
This will cost you around 20,000 to 30,000 USD. This is needed before you take any step forward in arranging your franchise business.
- Franchise registration
You need to register your business to comply with the state regulations and other local laws. The payment varies depending on the location where the business is situated.
- Accountant fees
Accountant fees for accounting and auditing services for your financial statements are needed. The audit will include a detailed consideration of the company’s capital structure, revenue recognition, and other monetary policies.
The Bottom Line
Franchises are a strong business model which can be executed and utilized by any willing individual. It is increasingly growing, and the possibilities of this type of business model are promising. However, before indulging yourself with it, make sure that you know all the necessary considerations needed to prevent future complications.