Imagine a situation where you open up a business. Things are going smoothly during that first year. Sales are up, your clientele is passing along rave reviews to any online message board that will listen and you’re feeling comfortable with your place in the community. After some initial success, not necessarily out of the gate, you may think about branching out the brand and franchising.
Franchising is a viable industry and can lead to a whole new source of revenue. But before you start making t-shirts and getting a line of toys ready for merchandising, there are a number of financial points you need to learn first.
The total cost of becoming a franchisor can range depending on the business. There are franchise fees—an expense a person pays to operate a franchise branch that can range from as low as $10,000 to $100,000 or even higher. But once you pay for the right to own a franchise, that is where the real work comes into play. There are a number of things to get situated before you open the doors and welcome customers with open arms. The two backbones of getting a franchise off the ground are crafting an Operations Manual and Franchise Disclosure Document.
An Operations Manual is what lines out the business for a franchisor, and it’s a big resource for a franchisee to use. It is the main tool to use for getting the infrastructure of a company going. It will include such things as a training guide for new franchisees and employees, a guide to expenses for the company and, most importantly, it is a reference tool for anyone that needs a question answered. And this document isn’t as simple as a three-page pamphlet. These documents are the equivalent of War and Peace—iFranchise Group recommends they be anywhere from 300 to 500 pages and include pictures.
Once you have the baseline of your franchise ready to go, it is time to get the Franchise Disclosure Document (FDD) completed. Whereas the operations manual outlines the rules and regulations of your company, an FDD lines out the legal aspects of it. This won’t be light either as it contains such documents as a history of bankruptcy from franchisees in the company, a listing of franchisee fees and other payments, a statement of the initial investment and patents and copyrights, to just name a few. It’s used to help your franchise make informative decisions and to assist franchisees if they are in a pickle. Preparing this important step in the process of becoming a franchisor can range from $20,000 to $35,000, according to The Franchisor Doctor.
Now you may think that once you hit enter on the computer after slogging to pen these documents means you are on the road to expanding your brand tenfold, but there is an important step to this. Steve Beagleman, president and CEO of SMB Franchise Advisors, said it’s important to hire outside consultants and franchise lawyers to look over these documents. Having a second set of eyes to look over these documents is integral, but getting a legal representative to make sure you dotted every “I” and crossed every “T” is paramount. They will make sure all the wording is correct and consult about legal options the company can take. All franchise attorneys have their own different fees, but expect to be spending a few hundred dollars an hour for this consultation.
So you have outlined your operations manual, consulted with a franchise expert and had a franchise lawyer look over your FDD. All is done, right? Beagleman says that this where the real work starts. Opening a franchise and assuming people will flock to it right out of the gate is not enough. Beagleman said it’s important to get a good marketing plan ready, which can be done during the operations manual preparation stage, and do some grass roots marketing. This can be networking with similar franchises or connecting with the community. This resource of connecting with the community and others is priceless.