How do I turn my business into a franchise?

There are many reasons for turning a small business into a franchise. Franchising offers a way to expand with less capital than owning all your own locations. It also spreads the business risk among a larger group of investors, i.e. franchisees. Another advantage is that as a franchisor, you can retain control over your brand and receive income while spreading the work.

At the same time, you must realize you will be giving up a certain amount of control and will still need to monitor quality. In other words, you can create rules and regulations, but you have to “inspect what you expect.” Otherwise, you are leaving your brand and your company’s reputation in the hands of others. And, as is nearly always the case in business, sharing the risk means sharing the return, which means your margins could be lower than if you expand your business by opening more locations or purchasing other companies.

These are some of the factors you must weigh in your decision process. But if you have decided that franchising is the best option for you and your company, there are several other considerations. Will franchisees be required to purchase everything from you? Will you warehouse product or will it drop-ship to franchisees? What kind of orientation and training will you provide? How will you price your franchise? How will you divide territories, areas, regions, states or cities? How will you make people aware of your franchise? Will you do it through networking? Will you attend trade shows?

Many of these questions must be answered before you embark on the franchising process. Most of these questions must be answered in the Franchise Disclosure Document (FDD) that is required by the Federal Trade Commission. The FDD is outlined on the next page, along with several links to Web pages that will be helpful to you. In addition to the FDD, you will need to develop a franchise agreement.

Here are some helpful links:

Sample documents http://www.freefranchisedocs.com/

FTC Franchise FAQ http://www.ftc.gov/bcp/franchise/faq1.shtm

FTC Franchise Rule Compliance Guide http://www.ftc.gov/bcp/edu/pubs/business/franchise/bus70.pdf

Here is an outline for a disclosure document.

• The Franchisor and Any Predecessors
• Litigation History
• Bankruptcy (i.e., any franchisees who may have filed)
• Listing of the Initial Franchise Fee and Other Initial Payments
• Other Fees and Expenses
• Statement of Franchisee's Initial Investment
• Obligations of Franchisee to Purchase or Lease from Designated Sources
• Obligations of Franchisee to Purchase or Lease in Accordance with Specifications or from Authorized Suppliers
• Financing Arrangements
• Obligations of the Franchisor; Other Supervision, Assistance or Services
• Exclusive/Designated Area of Territory
• Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols
• Patents and Copyrights
• Obligations of the Franchisee to Participate in the Actual Operation of the Franchise Business
• Restrictions on Goods and Services Offered by Franchisee
• Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
• Arrangements with Public Figures
• Actual, Average, Projected or Forecasted Franchise Sales, Profits or Earnings
• Information Regarding Franchises of the Franchisor
• Financial Statements
• Contracts
• Acknowledgment of Receipt by Respective Franchisee

Note: It is not required that this document be reviewed by an attorney for accuracy. It is a good idea to include a disclaimer that states all the information you have supplied is accurate to the best of your knowledge but that you take no responsibility for decisions taken by franchisees based on the information disclosed nor does the disclosure agreement constitute any kind of binding arrangement of any kind outside of any agreement or contract that might be signed.