This is a series of columns that appear in Okanagan Business Magazine.
“We have developed a business that we think is going to be very successful, can we sell this opportunity as a franchise?”
Before you decide to franchise your business, you must be aware that the business of franchising is a competitive one. It is important that if you are to succeed in marketing your franchise, that you have carefully prepared all aspects of the business to be franchised before it is offered for sale in order to make the opportunity attractive to potential buyers.
The sale of a franchised business involves asking someone to invest money for the right to carry on a business. In order for this to make sense, the business must be an appealing investment. Most people willing to invest in this type of opportunity are either sophisticated individuals or they have access to professional advice. If you have prepared an ill-conceived franchise idea, you are not likely to convince these types of people to buy your franchise. It is essential to the long-run success of any franchised business that you have prepared, tested, reviewed and revised a sound business plan.
Although there are many common elements to a sound franchised business plan, the actual mechanics of each franchise are different. You have the opportunity to develop your own franchised business plan to fit your particular product or service, and establish the level of monitoring and control over the buyer of the franchise opportunity that you desire.
The common elements of a franchised business can be divided into three general categories: the profit history of the franchise; the protection of the business concept; and the packaging which shows how to conduct the business.
The most effective tool for selling your franchise is to be able to point to a specific example and show that the business is profitable. No one is going to buy a franchised concept from you unless you have established that the concept is something that generates a profit. This should be the focus in the early stages of developing your business. Only when you have shown that the concept of marketing your products is profitable, should you then make the transition to franchising.
Nothing sells an opportunity better than a track record of success. Once you have established that your business is profitable, then you have a real life example upon which to base a series of financial projections to show the potential of the franchised opportunity. As a seller, you must be careful to clarify that past histories of profits are not representations or guarantees and that the results may vary according to location and operator.
One of the most important elements of a franchised package is some protection of the business concept from unauthorized competition through registration of copyrights, trademarks or patents. If proper registrations are obtained, then the buyer can be assured that the development of the business can be protected from infringement by unauthorized competitors. While the proper registration of these can be time consuming and costly, the protection given and the sophistication that it projects to potential buyers outweighs the costs in the long-run.
Most people buying into a franchise will not have had the prior experience of operating a business of this type. It is important for your to develop a series of manuals that deal with the comprehensive conduct of the business, dealing with such things as: site selection, interior decoration, hiring of employees, conduct of the business, accounting, marketing, manufacturing, advertising and sales.
Considerable time should be devoted to the creation of these manuals because they create the largest impression about the business and they must be designed to give someone who has never carried on this business a head start in the competitive world. You should consider setting up a series of relationships which the buyer could be obligated to, or be given the option to, enter into, dealing with things such as financing and banking, a customized accounting software, and establishing suppliers for products used in the business.
An important element of protection of the business idea and the concepts of how the business should be run is the creation of the franchise agreement itself. This is a powerful and essential tool in the relationship between you and the buyer of the franchise. In addition to establishing the fundamentals of how payments are to be made and the length of the relationship, it is the basis for regulating the method of carrying on the franchise business and the things that can be done to assure that the business is carried on in a uniform and professional manner. This is a complex document to which you should give a lot of thought in order to anticipate all aspects of the future relationship between the parties.
As you can see, there are many elements to the creation of a franchised business. If you have established the profitability of your business and you believe others would invest in it, then you are at the stage where a carefully thought out franchised idea may be appropriate. The creation of a franchise is something to thoroughly research and the time spent meticulously preparing all of the components that make up your franchise package will be rewarded in the long-run.
It should be noted that the impact of the law on any given situation depends upon each individual’s circumstances and the opinions contained in this article should not be relied on for assessing anyone’s legal position. Advice should be obtained directly from your own lawyer.