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How to franchise your business, and what franchisees can learn

If you want to be a franchisee, understanding the motivations and decisions made by franchisors is important. I came across this article that walks through the general considerations a franchisor must deal with when deciding whether to franchise their business. Reading the article will help franchisees evaluate whether the franchise fees and royalty are a fair exchange for the training and franchise system. The article lays out 13 steps, all of which should be included and considered during a franchisee’s due diligence.

First, the article helps evaluate whether a particular business can be franchised effectively. Franchisees need to understand what makes a good franchise business before evaluating the thousands of franchise oppotunities out there.

The article also describes the intellectual property consideration (mainly trademarks) which will somewhat strengthen the exclusionary power of franchises. It discusses the importance of the business, strategic and execuation plans of the business.

The article further describes how important pro-active operations and training support are to a franchisee’s success and for establishing a consistent brand image.

All of the above are important research points for franchisees, even when the franchisors has hundreds or thousands of units already sold. If a franchisee has weak training, poorly thought out business plan or poor site selection rules, you will find yourself one unhappy franchisee.

update 6-9-2005: Thanks for the link, Dane.

About Ryan Knoll

Attorney and advisor with an interest in franchising. Feel free to email me comments and questions on the "Contact Us" page.

2 comments

  1. I would suspect that those entrepreneurs who have operated a successful business and who want to franchise their business can’t believe the opportunity franchising gives them to maximize their profits and reduce their risk.

    If they want to remain independent, they, of course, have to grow so much slower because they have to bear the risk and expense of building and operating the physical units that will wear their brand name. As these units prove themselves, they can build more, but again the independent business man who wants to own a chain of stores has to be cautious and can only grow as fast as his “successful” units permit him to grow.

    The franchisor, however, has the opportunity to grow his chain rapidly because he is avoiding the risk and the expense of building the physical units and he is enjoying profits from these franchised units from the minute they open their doors —-all through the breakeven period and in success or failure, etc, as the case may be. Franchise units that fail can be churned and the assets can continue to serve the franchisor in terms of the royalties on the gross sales that the franchisor continues to collect from a second generation franchisee. Franchisors can overseed because they don’t share the risk of those units that don’t germinate.

    I’m sure that those who sell franchising to potential franchisors point out all of the benefits of franchising and also the benefits under the law that permit franchisors to churn failing franchises to their benefit with immunity and impunity under the law and thus grow more quickly.

    I’m sure all franchisors want to become like McDonald’s and be rich and famous all over the world. The sales pitch to the franchisor must sound almost too good to be true but he looks out there and sees those 750,000 franchisees and he sees his own personal gold mine just around the corner. Who doesn’t always want more?

    Of course, it isn’t the franchisor who borrows the money to grow his physical chain and it isn’t the franchisor who signs personal guarantees on the leases, and the franchise, and the fees from the franchisees do pay to set up Corporate and the franchisees pay for advertising, etc..as well, so why not try franchising?

    As a destroyed franchisee, I always take joy when I hear a franchisor has hit the dust — because they pursued THEIR dream with so little risk while taking unfair advantage of their ability under the law to hide the real risk of the investment from their franchisees and to con franchisees into buying their American Dream.

    Franchisors deserve the nightmares that come out of their American Dream because of their bad faith practices, but franchisees, who have dealt with franchisors in great good faith and trust, don’t deserve their nightmares.

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