Dr. Robert A. Needham
Founder and CEO of Collaborative Franchise Systems, LLC
What Are You Selling?
I am often asked, “Does my business qualify to become a franchise?” The answer is, “It depends.”
Let us start with the basics. When you want to sell a franchise, you have to offer three things:
- A Brand that people can trust.
- A System that can be followed.
- A Training Program that helps franchisees operate their business.
A Brand. Every franchisor that intends to sell a franchise within the United States should have a federally registered trademark (see uspto.gov). It is recommended that you do this with the assistance of a patent attorney or in many cases a franchise attorney will do.
A System. As you have developed your business, you have innovated on how to run your business. This is where an experienced franchise development firm, like Collaborative Franchise Systems (CFS), can help you translate your business concept into a “business-format franchise.” Additionally, you will need to comply with the Federal Trade Commission (FTC) Franchise Rule. It is highly recommended that you use a franchise attorney to write your Uniform Franchise Disclosure Document (FDD) and Franchise Agreement.
A Training Program. At CFS, we have a team of experts to help you write your Operations and Training Manuals. It is estimated that it will take an average of 100 hours work to properly create these documents to cover policies, principles, protocols, and procedures.
In the franchise industry, the Franchise Rule prohibits a franchisor (the one selling the franchise) to tell a prospective franchisee (the one buying the franchise) how much they can make. Since “the fear of loss is greater than the desire for gain,” it takes professional skill to sell a franchise that might cost $75,000 or more to open. Many franchisors and franchisees use franchise consultants and franchise brokers to help match seller to buyer. Once a franchisor has about 10 franchise units sold, the prospective franchisees can contact the existing franchisees for certain details which makes selling the franchise concept easier with this validation.
At A Minimum.
If you are thinking about franchising your business, at a minimum, you should have been in business for at least two years and likely have gross sales of $200,000 or more. It is estimated to cost between $50,000 and $150,000 to do franchise development and marketing of a new franchise concept. Expect the franchise development process to take up to 12 weeks just to put the system together.
I will discuss more in later blogs about specific aspects of developing your franchise concept.