How To Franchise a Business: A Comprehensive Guide

Franchising is a proven model for successfully expanding a business. But where should a business begin? 

Keep reading to learn how to create a replicable franchise opportunity, establish essential documentation and strategically grow your franchise with a focus on selecting the right partners for sustainable brand expansion.

Creating a Winning Business Model 

The first step when it comes to building a franchise is creating a business model with strong and consistent sales. Franchisees want to know that the concept they are investing in is consistently making money over a time frame of several years. 

A business must also be replicable, having been duplicated a few times. To establish a replicable franchise model, first-time franchisors should thoroughly document the successful establishment of their concept. This involves creating a system of procedures and operations that can be easily followed by others. 

Although the documentation may not be perfect, it should cover essential aspects such as the business's inception, operational processes, staffing and guidelines. For example, an operations manual with product lists, employee handbooks, vendor tips and storefront appearance guidelines should be provided to each franchisee. 

How To Create a Franchise Opportunity

Once a business is ready to franchise, the next step is to create a business plan that outlines information such as the number of franchises a company wants to sell, which markets they are targeting for growth and how fast they want to expand. Additionally, prospective franchisors will need to evaluate how much staffing and financial capital will be required to successfully sell licenses and onboard incoming franchisees.

Establishing a franchise involves significant upfront costs to cover items such as legal fees, operational manuals, trademarking, training, registration, Franchise Disclosure Document (FDD) creation and marketing. This comes before signing the first franchisee. 

Next, it’s time to create a Franchise Agreement and FDD. These documents outline the responsibilities of franchise owners, fees and tax responsibilities, financial performance history, rules pertaining to trademarking, and much more. An FDD allows a company to sell the concept to qualified entrepreneurs who then replicate the established business model and follow the guidelines in exchange for the payment of fees and royalties to the franchisor. 

Developing an FDD requires external assistance, typically involving collaboration with legal and accounting teams. Prospective franchisors will work closely with these teams to ensure proper documentation of the FDD, including organizing financial statements and spreadsheets. The FDD must also accurately outline the initial investment required for opening specific franchise locations. 

Growing the Franchise

Once a business starts selling franchises, it is important to promote healthy growth. One way to do this is to avoid hastily accepting the first available franchisee; select ones who can validate the brand for future franchises. 

Initial franchisees should be strategically located around the franchisor's base to foster regional growth. Then, a legal team can help guide decisions on where to expand based on registration states and competitive threats. Building a strong corporate support team is crucial for ongoing support and training of new franchisees. 

Overall, turning a business into a franchise involves creating a strong and replicable business model, in-depth documentation, significant upfront costs, and strategic planning. Finding the right franchisees, particularly those with operational and financial capacity for expansion, is key for consistently successful brand growth.