How to franchise your business

How to franchise your business

How to franchise your business “ The best way to predict your future is to create it ” a publication of 2 How to franchise your business Conte...

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How to

franchise your business “

The best way to predict your future is to create it



a publication of

2

How to franchise your business

Contents Contents Introduction About us

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Basics on franchising What makes a business Franchisable? Create a Franchisable Business Why should you consider franchising? Steps to franchise a company Rules, costs and guidelines to franchising How to market and sell franchises

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Free Consultation About Franchise Marketing Systems

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How to franchise your business

How to franchise your business By Christopher James Conner and Tom DuFore The keys to franchising successfully are having a profitable business model and defining a consistent, validated platform to offer your franchise through. The business must then turn into your “product” and have defined franchise marketing and sales processes in place to deliver that product to your franchisees. The marketing channels and systems used to effectively advertise and sell a business opportunity are based on different standards and follow a specific process – define what that is for your industry and your business model. Let us give you insight on the process of franchising your business through this eBook, hopefully this will help you in building your own business plan, thoughts and strategies as they pertain to your business growth. Franchising can be an extremely effective and profitable way to grow a business. It is the true definition of scale. Allowing others to prosper using a proven business model while effectively building and developing a larger brand with economies of scale and wider influence allows all parties to be successful.

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How to franchise your business

About Christopher James Conner - President Atlanta, Georgia - Mr. Conner has spent the last decade in the franchise industry working with several hundred franchise systems in management, franchise sales and franchise development work. Christopher Conner has a specialized focus in franchise development and franchise consulting work. Mr. Conner leads the Franchise Marketing Systems team in franchise consulting and franchise development projects. He holds a B.S. from Miami of Ohio in Oxford and an MBA in Finance from DePaul University.

Tom DuFore - Chief Operator Officer Chicago, Illinois - Tom DuFore is the Chief Operating Officer for Franchise Marketing Systems. In his critical role he is responsible for the oversight of Franchise Marketing Systems Operations and consulting with and advising Franchise Marketing Systems’ Clients. Tom has personally worked with and advised hundreds of businesses ranging from the largest companies in the world to start-ups. Tom DuFore holds a B.S. Degree in Management from Elmhurst College, and an M.B.A. degree from DePaul University’s Kellstadt Graduate School of Business. Additionally, Tom has worked as an adjunct professor for DeVry University. He is the Co-Founder and First President of the Pi Iota Sinfonia Alumni Association and has served on the boards of the Elmhurst College Alumni Association and the Schaumburg Business Association.

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How to franchise your business

The basics on Franchising What is Franchising?



Franchising is the practice of using another organization’s or successful business model to replicate success through independent owner operators. It is a special arrangement where the owner of a business known as the franchisor gives another independent individual known as the franchisee the right or authority to market and distribute his/her goods and services and use the business trademark for a certain period of time in exchange for a fee. In simple terms, franchising is when a franchisee pays a fee for the right to use the business name and business system of the franchisor.

The Two Most Important Requirements for Success are: First, Being in the Right Place at the Right Time, and second, doing Something About it.

Franchising is considered to be one of the most effective methods an organization or business can use to distribute its goods and services as it seeks to meet or satisfy the needs of customers.



Ray Kroc, Founder of McDonald’s __________________________________________ share this ebook 5

How to franchise your business

The basics on Franchising What is Franchising? | 2 Franchising is a win-win-win business relationship where the franchisor gets a chance or opportunity to expand his market presence without having to use his own capital. The franchisee gets the advantage of gaining access to an established or stabilized business system at a lower risk. And third, the customer benefits by having greater access and availability to the franchise brands goods/services delivered to them by a caring owner operator. The relationship between the franchisor and the franchisee is mutually beneficial, with the full obligations and duties of each party clearly outlined in a detailed and comprehensive franchise agreement. The franchise agreement and disclosure document are customized for each individual franchise and explain the franchise opportunity including the costs, duration, renewal terms, and ongoing fees.



There’s no reason to be the richest man in the cemetery. You can’t do any business from there.



Colonel Sanders, Founder Kentucky Fried Chicken __________________________________________ share this ebook 6

How to franchise your business

What makes a business franchisable? - 1 The following criteria provides a general starting point in evaluating the franchisability of a business. While there are many variables and factors to truly assess a business’ viability, these points should help in the initial assessment. It is recommended that for a more precise analysis that a consultation be conducted by a seasoned franchise consultant to fully determine franchisability.

The business is currently in operation and has had time to have proven its commercial prowess. This means that the business should have been in operation for at least three years.

The business must have a national adaptability. This means that the business should have a stable and reliable market both locally and nationally. The business has to be profitable. A profitable business plays a major role in allowing both the franchisors and the franchisee to earn a decent and reasonable salary at all times. Essentially a franchisee should be able to generate a 20% return on their cash investment, plus earn a manager’s sales if they are the owner/operator.

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How to franchise your business

What makes a business franchisable? - 2 The business should have something unique or special that makes it stand out from the rest. It needs to offer faster, better, juicier, affordable, or more reliable products and services to clients in its own unique way. What makes your business a better mousetrap than the rest of the industry? Availability of funds or finances – The more a franchisee can get the required financial support, the more a business can be franchised. Furnishings, buildings, receivables, and fixtures are all easy to finance and make it easier for businesses or companies to create leverage. The business concept must be teachable to franchisees within a reasonably short period of time. Franchisees must be given proper and comprehensive training and coaching before getting into the franchising business.



Success Seems to be connected with action. Successful people keep moving. They make mistakes, but they don’t quit. Conrad Hilton, Founder Hilton Hotels



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Create a Franchisable business It is important for franchisors to understand that not all potential franchisees are entrepreneurs. In fact, most of them are not what someone typically thinks of as a traditional entrepreneur. Instead, most franchisees are either employees or unemployed seeking to improve their financial status and/or have recently left their jobs looking for ways to become their own bosses. Mentality of owning a business The common thing about the two groups is that both have the mentality of owning their own business but in one way or another, lack the required capital, industry experience, or business skills to make it happen on their own.



They therefore end up taking advantage of established business systems capable of providing them with some or all of the most important benefits of franchising.

Not all potential franchisees are entrepreneurs



This includes co-operative advertising, operational support and training, access to financing and site selection, successful marketing ideologies, and guaranteed mass purchasing power.

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How to franchise your business

Why should you consider franchising? - 1 1. Capital A franchisee does not become your employee or worker, but rather your independent contractor. This means that he is responsible for bearing various operational costs including marketing, renting or leasing equipment and materials, taxes, and payroll. As the franchisor, you will provide support and training and will not manage the day to day activity

2. Human Capital - Local Management With Motivation By selling franchises you are able to lock in a vested owner/operator who will provide local market knowledge to maximize their ROI. Since the individual is well aware that success depends on how hard he works, he will always be motivated and determined to make the business grow.

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How to franchise your business

Why should you consider franchising? – 2 3. Speed Selling franchises is one of the fastest ways through which you can expand your business or brand name faster and effectively. Within a few months or years, your business can actually grow from regional to national or international recognition. Your franchisee holds the full responsibility of recruiting and training new employees on a local basis and also running vigorous marketing campaigns, in addition to fronting the required capital to run the business. The Curves Franchise opened 10,000 franchise units in it’s first ten years of operation. 4. Passive Income Selling franchise allows you to get passive income without much sweat. Typical franchise agreements oblige franchisees to commit themselves to paying royalties, which in most cases range from 5% to 15% of gross sales.



Expand your business and brand name fast and effectively



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How to franchise your business

Steps to franchising your company - 1 Step 1: Determine the readiness of your business The most important thing that you should do is to determine if your business is franchisable. Apart from having a good track record of sales, you should also take other important factors into consideration such as the business concept, track record, profitability, and the consumer behavior.

Get the right information and ask the right questions

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How to franchise your business

Steps to franchising your company - 2 Step 2: Think about How You Would Like Your Business to Grow For you to have a prosperous business, you must think and come up with good business strategies. You might think of expanding from a regional level to a national or international level, adding more outlets, using new marketing strategies, or even working with more motivated and active staff members.

Step 3: Register as a franchisor For you to get into a legal franchising business, it is very important for you to fulfill the legal requirements. While complying with your local or national franchise authority, you will be asked to provide more detailed information about your business including your business experience, audited financial statements, and how you intend to work with the franchisees. More on this will be explained in the next few pages.

For you to go through the registration process more successfully, it is very advisable to seek the assistance of an experienced franchise professional who can ensure that you are going through every step correctly.

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How to franchise your business

Steps to franchising your company - 3 Step 4: Screen Your Franchisees Before you start selling your franchise, you should take your potential franchisees through thorough a thorough screening process. Because they are going to represent your brand and trademark, you must ensure that you choose the right people who are capable of steering your business in the right direction. Once you identify the right franchisees, make sure you agree with them on the vital rules and regulations before you sign the franchise agreement.

Step 5: Offer Support to Your Franchisees As the franchisor, one of you your most important responsibilities is to ensure that your franchisees get all the necessary support they need at all times. Ensure that you provide them with enough training and support to keep you franchisees operating successfully.

If you consider franchising your company, get in touch with people who have the skills and knowledge to help you get the most out of your franchising plans.

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How to franchise your business

The Rules, Costs and Guidelines to Franchising Franchise rules can be a bit complicated. There are different sets of federal and state laws governing franchising. These rules have uniformity federally, but vary from one state to another. The body in charge of regulating franchising in the United Sates is the Federal Trade Commission (FTC). The federal Trade Commission Franchise Rule applies to all states in the US and generally determines a business is a franchise when the following elements are in place: 1. Someone pays you a fee greater than $500 2. This person then uses your brand/tradename 3. This person uses your operating system/marketing system When these peices are in place: Name, System, Fee, you are most likely a Franchise and need to comply with franchise guidelines.

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How to franchise your business

The Rules, Costs and Guidelines to Franchising According to the FTC, there are about 15 states in the US where franchisors are required to register the Franchise Disclosure Document (FDD) with all their potential franchisees. These states include Illinois, South Dakota, Michigan, California, New York, Maryland, North Dakota, Wisconsin, Minnesota, Indiana, Washington, Virginia, Hawaii, Oregon, and Rhode Island.

Even though many states do not ask for the approval of the FDD, the franchisor is obliged to register with his state agencies in order to sell his franchise there. Apart from ensuring that both the franchisor and franchisee make informed decisions, the FTC also ensures that all forms of deception and misunderstandings in the sale and buying of a franchise are prevented. However, the rules do not regulate the terms and conditions agreed upon by franchisor and franchisee.



The rules do not regulate the terms and conditions agreed upon by franchisor and franchisee.



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Franchise Disclosure Document Requirements The FDD requires you as the franchisor to: • Disclose your company's history and management structure • Provide details of all the financial arrangements you will be offering the franchisee • Provide any restrictions on your services and products • Provide information about your existing franchises, such as how many there are and how many are operational • Contact details of your current franchisees who can be contacted for more information • State how you would like the relationship between you and the franchisee to be • Provide trademarks, copyrights, and patents • Provide fee schedules for opening, running, and ending the franchise • State your projected capital investment and territorial protection rights • Follow a specific sales process in presenting and selling to a potential franchisee.

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How to franchise your business

Franchise Costs Franchise Fees Franchise fees are divided into three categories: 1. Franchise Fee 2. Royalty Fee 3. National Advertising Fee The franchise fee, which goes to cover the cost of assistance and training while the franchisee, it also covers expenses for site identification, recruitment, franchisee launch, and territory analysis. This fee typically ranges between $10,000 and $50,000, but can go as high as $150,000.

The royalty fee is mainly meant to pay for ongoing franchise assistance and is the true wealth creator for the franchisor. It is usually paid on a weekly or monthly basis and collected via auto draft. This fee usually ranges between 4% and 15% of gross revenue. The national advertising fee is what is required to be paid back to the franchisor for national marketing efforts. This is a collective marketing bucket that is used for the greater branding, marketing and awareness of the franchise organization. This fee usually ranges between 0% and 5%

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How to franchise your business

How to Market and Sell Franchises Who is the target audience for your franchise? When considering the target Franchise profile, we look at a number of relevant issues related to who we want to be operating franchises of our business. Typically, if you consider who you might hire to manage a location of your business and would entrust the operational responsibilities of a “unit”, these same characteristics and traits should be inherent in a franchisee. Our focus will be to retain Franchise operators who match the characteristics and abilities of a good manager only now they will be investing in the business as opposed to working for you. Once the buyer profile has been established, formulate a number that should dictate who can afford your franchise once you have established the initial investment and the overall financial requirements needed to open the business. Some of the skill sets we have found to be consistent among successful franchise owners are the following:

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How to franchise your business

How to Market and Sell Franchises •

Typically, franchisees should exhibit strong sales and customer service abilities – they preferably should have sold similar products or services in the past which relate to what they will be doing when opening the franchised business model. It would be helpful if they also have some preexisting business contacts as well – which they can call upon when the business is opened and utilize to support its growth.



Hard working and Highly Self-Motivated – even in the Franchise model, someone’s drive and commitment to success will determine how well they do as a franchisee.



Organized and Structured – Franchise Candidates who have shown the ability to manage, organize and lead will typically be more successful as a business owner.



Some aptitude with technology – Good candidates for your franchise model will know and understand the basics of technology enough to grasp and understand how to manage communication through email, virtual teleconference and smart phone applications. In today’s day and age, these skills can be as important as ever to communicate with a wide-ranging network of franchisees.

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How to franchise your business

How to Market and Sell Franchises •

Well-developed people skills – strong relationships with affiliates, suppliers and between franchisor and franchisee will help franchise owners be successful and build their business.



High personal standards: excellence, honesty, integrity, etc. – credit and background checks should be run on candidates to confirm that they are decent candidates. They will be required to fill out applications that will determine whether they meet minimum specifications as a Franchise.



Able to meet initial investment requirements – a franchisee ultimately needs to be able to cover the expenses and investment needed to start the business and operate the model for three months without cash flow from the operation.

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How to franchise your business

How to Market and Sell Franchises Evaluation and Application Process Throughout the sales process, there should be a structure that requires the buyer to “Give to Get”. This concept is simple, to continue through the sales process, the buyer must provide feedback and show commitment to the franchise buying process in order to be progressed through the model. This could be as simple as requiring the franchisee to fill out a single application and evaluation form, or as complex as having them go through background screening, credit checks, personality testing and multiple franchise evaluation forms. We recommend at a minimum a single evaluation form, that provides the Franchisor (YOU) with enough information to get a basic understanding for the candidate’s ability, work history and skill set. The form should also have a sign off providing the Franchisor with the ability (legally) to run a credit check on the candidate.

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How to franchise your business

How to Market and Sell Franchises Evaluation and Application Process Continued You should absolutely verify financials. Many franchise candidates will say they have the funding because they want the franchise and not necessarily be telling the truth. You need to verify this as the franchisor to protect your system and their future. Starting a franchise without the needed capital is usually a recipe for disaster.

Use the evaluation as a selling tool. “We need to get to know you better and this will carry you into the next stage of the process with us.” In our experience, buyers won’t send an evaluation form in until they are serious and relatively committed to a franchise concept. It is a very good sign to receive an evaluation form that the franchisee is looking seriously to buy.

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How to franchise your business

How to Market and Sell Franchises GOALS / BUDGET Develop a marketing Plan for your franchise which outlines a franchise sales and marketing program for the first 12 months of the Franchise sales effort. Present industry standards for establishing a budget is $1,000 $5,000 per unit sold on average, it should be your plan and goal to bring this average down and find ways to more efficiently introduce the franchised business model to qualified prospective candidates with less of an expense per sale. Please note that your budget figure should include production, administrative, and other miscellaneous costs—we usually estimate this to be at least 10% of the Marketing Plan budget indicated above plus the cost to print the Franchise sales brochure and time needed to send brochures and handle administrative duties that are part of the Franchise marketing process. This plan should be used as a guide for your Franchise expansion plans and should be re-evaluated throughout the course of the first year’s execution and implementation. __________________________________________ share this ebook 24

How to franchise your business

How to Market and Sell Franchises Five Good Reasons An excellent way to be clear on why anyone should buy our Franchise is to develop a list of three to five good reasons as to why an investor would buy into your Franchise system. These will be your key points as to what the value of your franchise model is and these should be reiterated in all of your Franchise marketing communications. Here are Five Possible Good Reasons as a Reference Point for a Franchise model.

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How to franchise your business

How to Market and Sell Franchises Five Good Reasons Continued 1. Strategic Partnerships with vendors and suppliers in place – big brand and big resources behind this business model. 2. One of a kind business model and service suite to be offered to business owners in your market available through the systems and technology we have in place. 3. A Business Model that allows for scalability without the initial investment of a traditional business with recurring revenue from continuing services – “sell it once and continue to see the revenue”. 4. Market with unlimited growth potential that currently generates in excess of $____ billion per year in revenue and by the year 2020 will generate in excess of $____ billion per year in revenue. 5. Training, support and guidance that has been designed, customized and tailored to fit each franchisee’s needs. We stand behind our franchisees to the fullest extent and have a team of professionals fully committed to franchisee’s success.

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How to franchise your business

How to Market and Sell Franchises WHAT TO DO WITH LEADS? How to Handle A Franchise Lead It is important to remember that anyone can visit your site and request information on a franchise. Just as in the phonescreening process, we will need to determine whether a lead that comes in through the franchise lead generation site is qualified or not. We won’t waste our time on unqualified leads and work through an efficient process to disqualify those who do not fit our specifications as a potential Franchise partner.

We will use a process to work our prospects online, taking them through the specific steps of our pre-qualification, and lead them all the way through to an online discovery day process. In doing so, this will allow us to tighten the selling cycle from a prospect lead to a Franchise; decrease cost, and increase the likelihood of a highly qualified Franchise who is ready to sign an agreement. Before developing a franchise organization, consider the sales process and needed staffing to effectively sell and market franchises of your brand.

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How to franchise your business

How to Market and Sell Franchises Managing Franchise lead generation for a franchise model: 1. Franchise Advertisement • Compelling Message • Attractive Branding • Interesting Business Idea • Clearly Display Cost and Investment Required 2. Information Request Sent To Us 3. Auto Responder Email Sent to Prospect • Further builds message about your franchise • Further Qualifies in who we are looking for and what is required to qualify for the Franchise. • Directs the candidate to the landing page with product and Franchise video presentation. 4. Phone Call/Email Until Contact Made by Account Manager • Position the Franchise as a selective group • Further Qualify 5. Get Applicant Survey Form Back 6. Get Applicant to a Franchise Webinar Presentation with “MANAGER” 7. MANAGER presents agreement following presentation 8. Close Franchise Acquisition 9. __________________________________________ Collect Payment share this ebook 6

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How to franchise your business

How to Market and Sell Franchises You should develop auto responders to follow-up with prospects which would provide additional information and keep the buyer interested in your franchise concept. You should use standardized letters sent via email in response to prospect inquiries that would provide prospects with an immediate response and help streamline the marketing process as well as providing a consistent message to your Franchise candidates. It also communicates to prospects that we are a well-organized, efficient, and technologically competent organization. It is important to remember that the idea is to drive the candidate through the sales process until they reach the discovery day. A Discovery Day is a the meeting where a candidate is introduced to the franchise model, you as the owner/founder, your management team and anyone involved in the franchise concept. This meeting is critical in that it is in many ways the final stage of the process and typically determines whether and when the buyer moves forward with your franchise. We have found that most buyers when they have purchased a flight, committed to a trip and spent a day/weekend or afternoon with you at your place of business, they are serious about the business model and will usually move forward in a positive way. Over 70% of the Discovery Days we have held have turned into franchise sales. __________________________________________ share this ebook 29

How to franchise your business

How to Market and Sell Franchises Our advice is to plan a Discovery Day with your prospective franchisee that is relaxed, comfortable and focused on the relationship. Take time to plan out a day that will introduce them to the business, but also won’t make the day feel like a structured presentation without personality. You want the buyer to feel comfortable and leave the meeting feeling like they have a connection to you and the people behind the franchise. This in many ways is more important than the hard facts related to how you operate your business, but you do need to show them the tangible elements of how you operate your systems and procedures. You may choose to have a buyer sign an NDA prior to visiting your location to protect your intellectual property and business model.



70% of Discovery Days have turned into franchise sales… Take time to plan out the Discovery Day



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How to franchise your business

Get a

Free Consultation Find Out if You Should Franchise Your Business. Speak with franchise consultants who have spent years working with organizations to build, develop and execute franchise expansion strategies. A consultation includes the following elements: • Analyze whether your business has the concept strength to be a successful franchise. • Review of current business practices and how that translates to franchising. • Discussion of how marketable your franchise could be in today's environment. • What’s your potential return on investment • Timing and the competitive overview of similar or related franchises to you. • Examples and results for franchise systems in businesses that are similar to yours.

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How to franchise your business

About

Franchise

Marketing Systems

We are a consulting firm designed to work with small businesses and small business owners who want to grow quickly and efficiently through franchising but with a lower investment and more manageable cash requirements. Franchise Marketing Systems Southeast Mr. Christopher James Conner Atlanta, GA (800) 610-0292

Franchise Marketing Systems Midwest Mr. Tom DuFore Chicago, IL (800) 610-0292

Franchise Marketing Systems West Coast Mr. Devin Conner Los Angeles, CA (800) 610-0292

Franchise Marketing Systems Southwest Ms. Christine E. Wilson Phoenix, AZ (800) 610-0292

Franchise Marketing Systems Northeast Mr. Alan George Boston, MA (800) 610-0292

Franchise Marketing Systems Midcentral Mr. David Oakley Nashville, TN (800) 610-0292

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