Over the years, I’ve worked with a number of small business owners who want to become franchisors in the near future. Truthfully, for the right person and business, the franchise model is a great way to grow your business. However, turning your business into a franchise system can be a scary process, especially if you are unfamiliar with the franchise space. So, in today’s blog post I’m going to provide you with the four biggest problems I see new franchisors face and tips on how to avoid these costly mistakes.
Mistake 1: Not understanding what it means to turn your business into a franchise.
In today’s world, it seems like almost everyone is familiar with the concept of franchising. Many of our favorite restaurants, retailers, and service providers are franchises, so the idea of franchising has become imbedded in our everyday life. But do you really understand what it means to turn your business into a franchise?
Before you become a franchise, there are legal documents that must be prepared. In particular, these documents include the Franchise Disclosure Documents and the Franchise Agreement. Each of these documents describes certain details that must be disclosed to potential franchisees and the rights or obligations of each party. You may have never thought about some of the items necessary to complete these documents.
In addition to completing the legal documents to become a franchise, new franchisors are often surprised to find that running a franchise system is different than running a business. As a franchisor, you will not be completing the day-to-day tasks at a single location. Instead, you will have new responsibilities, like working with and recruiting franchisees. For these reasons, transitioning into the role of franchisor is sometimes difficult for business owners.
This is why it is necessary for new franchisors to have a clear understanding of what it really means to franchise your business. So, if you are looking to enter the franchise space, my suggestion is to take your time and not rush into any big decisions. Be diligent about researching the franchise model and talk to people that have successfully franchised a business. Also, it’s important to develop a relationship with knowledgeable professionals (such as attorneys, consultants, and accountants) who can help you steadily transition from a business owner to a franchisor.
Mistake 2: Not actively planning how to grow your franchise system.
Another mistake that I see frequently from new franchisors is that they do not actively plan how to grow their franchise system. All too often, franchisors are so excited to meet people who want to become franchisees that they lose sight of any plan for controlled business growth.
Soon after you make the decision to franchise your business, you will need to develop a plan to grow the franchise system. This includes determining things like geographic territories, the number of new franchise locations you expect to open over the course of the next few years, the qualifications you are looking for in potential franchisees, and how you will continue to market your brand and set quality control standards. Figuring out these key details takes a lot of forethought and should not be pushed to the side.
To avoid this common problem, you should take an active roll in planning out the growth of your system. It isn’t enough to just hope that the perfect franchisee will come along. Be proactive about the growth of your business by making your plans as detailed as possible. And remember, you don’t have to say yes to every potential franchisee! Take the time to really think about what each person brings to the table, whether he or she will help you build a strong franchise system, and whether a proposed location fits into your larger business strategy.
Mistake 3: Not seeking trademark protection for the name of the franchise.
The next mistake I see all too often is that new franchisors have not sought trademark protection for their name or brand. You might be tempted to believe that not seeking federal trademark protection is not a big deal, but this can lead to problems that can get expensive quickly! The expenses connected to this problem usually occur in one of two ways.
First, let’s say you’ve owned your business for a long time. You have signs, letterhead, logos, as well as other marketing material, and even a URL using the name you’ve selected. You also might have registered the name with your Secretary of State’s Office. After a few years of operation, you decide to franchise your business. So, as your franchise system expands, you realize that another business is using a name that is the same or similar to yours in a different city or state where you are trying to open a new franchise location. After you make this discovery, you decide that you’ll rebrand your business, which means buying all new marketing material, a new URL, and spending time rebuilding your own brand recognition and customer base. Keep in mind that the more franchises you have in operation, the more expensive this process will be for either you as the franchisor, or your franchisees, depending upon how your agreement is laid out.
Second, let’s take the same scenario as the first example, except instead of you deciding to rebrand your business on your own, the other business realizes that you are infringing on their mark and sends you a cease and desist letter. If you are like most business owners, you’ll immediately contact an attorney to try to figure out your next steps. The legal fees associated with defending infringement claims can add up quickly and there is still the possibility that after the case is over, you’ll still need to rebrand your business.
It is easy to believe that this situation will never happen to you because you’ve been using your name for a long time without any problems. Realistically though, businesses don’t usually bother to file infringement claims against a small business located miles away. But, once your business begins taking up a market share of customers within their geographic location, this attitude changes quickly. It is all too possible that a trademark infringement claim will hit right as your business begins to see real success, which can slow your momentum.
In order to avoid this problem, you should speak with an attorney about applying for federal trademark protection early on in the franchising process. While this involves some upfront costs, it is better to address the problem early in the process rather than deal with the headache and additional expenses down the road.
Mistake 4: Not developing a comprehensive training program for new franchisees.
The final mistake I want to address occurs when franchisors don’t take the time to fully develop a training program for new franchisees. When you begin the franchising process, you will be required to create what is known as Franchise Disclosure Documents, which will ask you to describe any training programs new franchisees will receive.
Many times, new franchisors don’t understand how important their training programs are to helping franchisees achieve success. You want to be able to show new franchisees how to run the business in an efficient and intuitive manner, that way they can get off on the right foot and establish a successful franchise location.
So, take your time when developing your training program. Make sure that processes are understandable and that franchisees have resources to turn to if they need help. There are a number of third party resources that can help with developing a training program. It can also be beneficial to receive feedback from your franchisees so that you can continually tweak and improve your training program.
In conclusion, I hope this post will help you avoid making costly mistakes when franchising your business. As always, if you found this blog post helpful, I invite you to check out our blog and podcast, or visit our Contact Us page to get in touch and figure out how our office can help you achieve you franchise goals.