The numbers behind franchising don’t lie. According to the IFA Economic Impact Study conducted by IHS Markets Economics in 2018, about 733,000 franchise establishments exist in the United States, while franchising supports 7.6 million jobs and contributes more than $674 billion to the U.S. economy.
So, it’s no wonder why many entrepreneurs want to learn how to franchise a business!
Whether you’re an entrepreneur with a new business idea or already have had an established company for years, the allure of franchising is undeniable. However, understanding how to turn a business into a franchise successfully is key.
When done right, franchising can potentially lead to cost-efficient expansion in a relatively short amount of time. Entrepreneurs need to understand the process of how to turn a business into a franchise very carefully in order to pull it off without a hitch.
We examine how to franchise a business step-by-step and take a detailed look at franchise registration and other important aspects of turning your business into a franchise.
How to Franchise a Business
1. Evaluate Your Company
First, carefully weigh whether franchising is right for your business. Research consumer demand and other key data carefully to be sure that your business can successfully transition into a franchise or become a franchisor as an entirely new company. Make sure your company is also in good financial health and ready to adopt to the franchising business model.
2. Learn All of the Legal Requirements
To legally sell franchises in the United States, entrepreneurs need to successfully register a Franchise Disclosure Document (FDD) with the Federal Trade Commission.
In the FDD, entrepreneurs are asked to provide critical information on 23 key items, such as the company’s initial fees, additional fees, franchisee restrictions, financial statements, and the like.
In addition to these FDD requirements by the Federal government, states sometimes enact their own franchise laws and regulations to complement the Federal FFD requirements. Franchisors looking to sell in specific states need to make sure they adhere to these state-specific regulations in addition to complying with the FDD rules.
3. Choose Your Business Model
The next step in how to turn a business into a franchise is to decide on their business model as a franchise company.
Specifically, this involves deciding on critical points such as:
- Franchise agreement terms
- Franchise fees and royalties
- Training programs
- Franchisee support
4. Register Your Trademarks
If your business hasn’t already done so, be sure to register your trademarks with the United States Patent and Trademark Office (USPTO) if you’re starting a franchise from the ground up. This is crucial, as it helps to protect the intellectual property of your company and ensures that you alone can use it unless you specify otherwise.
5. Create an Operations Manual
After deciding on your business model, draft up a detailed operations manual that instructs franchisees on how to run their franchise unit on a daily basis and lays out the company’s specific policies very clearly.
6. Register as a Franchisor
Franchise registration is a critical step if you’re looking into how to franchise a business. Understanding how to register a franchise successfully can help ensure that your company is fully compliant with all legal regulations and can hire franchisees and expand without a hitch.
Be sure to complete all of your legal paperwork very carefully and submit everything on-time. Your FDD should be prepared, carefully reviewed, and submitted as a “multi-state FDD” so that your franchise can legally operate in every U.S. state, and also allow you to sell individual unit franchises as well as multi-unit franchises across development areas.
Additionally, make sure to register in the individual states you plan on selling franchises in before recruiting prospective franchisees in them.
7. Recruit Franchisees
Next, you’ll need to recruit franchisees and hire key staff members to help your business grow. After hiring and training internal staff, begin the process of recruiting franchisees to help your business expand. Look for prospective franchisees who are motivated, eager to learn, and truly believe in your company and its mission.
8. Train Franchisees
An especially critical step when it comes to how to franchise a business, franchisee training can make or break your business.
Although the exact training program varies for each franchise, try to construct a training regimen that’s as comprehensive and detailed as possible, giving franchisees instructions on everything from day-to-day operations to advertising to hiring and training staff of their own. It’s also generally a good idea to host quarterly or annual conventions where franchisees can gather together and further develop their skills, exchange best practices, and the like.
9. Launch a Sales and Marketing Campaign
To increase your business’ revenue as well as its visibility, launch a broad sales and marketing campaign. In addition to launching an advertising campaign and working with your franchisees to target the local markets they’re in, take a hard look at where you want to expand overall. How will you grow your brand recognition? Will you expand locally at first or nationally? These are the key questions you need to ask as part of your sales and marketing campaign.
10. Support Your Franchisees
Finally, it’s important to remember that, as a franchise, your business needs to offer ongoing support for its franchisees in order to succeed in the long-term. Sustained marketing campaigns, annual franchisee summits, taking franchisee feedback into account when updating your business policies and manual, and the like are all critical aspects if supporting the foundation of your business, its franchisees.
How to Register Your Business as a Franchise
Successful franchise registration is one of the most important aspects of how to turn a business into a franchise.
Franchise registration always starts with preparing an FDD and franchise agreement. While there is no specific Federal registration process for franchise offerings, certain states do in fact require the registration of franchise offerings. These include:
- New York
- North Dakota
- Rhode Island
- South Dakota
Registration in these states can often be time-consuming and complicated. Franchisors must submit their FDD and other required forms to appropriate state officials, usually the state’s Attorney General’s office or Department of Corporations, along with applicable registration fees which typically range from $250 to $750. Registration is in effect for one-year and typically must be renewed before their expiration date.
After a state returns it comments on the application, the franchisor is allowed to respond. It’s not uncommon for multiple revisions to the application be required by state officials before they’re finalized. After the registration process is completed, an order declaring the registration is now effective will be issued by the state.
How Long Does It Take to Register a Franchise?
Usually, it takes between approximately 30 to 90 days from the date your original franchise disclosure document is prepared and registration forms submitted before approval are granted. This, however, varies by individual state and the nature of your business.
By Steve Longo and Jim Notaris