Franchising your business is a proven path to rapid growth. Becoming a franchisor is not a natural ticket to success. When the right model is franchised effectively, it can be an excellent growth strategy that requires less startup capital than growing through opening multiple locations. The process of becoming a franchisor is often lengthy and involves considerable cost. Qualifying to sell franchises does not mean you will find buyers.

Creating a successful franchise requires making decisions that will affect the business for many years. There are some specific legal documents that need to be created before starting a franchise, such as the creation of operations manuals and training programs. Many states do not require any fees to start a franchise. Those states are: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Idaho, Kansas, Massachusetts, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Oklahoma, Oregon, Pennsylvania, Tennessee, Vermont, West Virginia and Wyoming. The following states have laws stating that a franchisee is exempt if it has a trademark or service mark: Connecticut, Georgia, Louisiana, Maine, North Carolina, and Utah. The following states have laws that state that a franchise is not required to file with the state if it complies with the FTC rule regarding the Franchise Disclosure Document (FDD): Iowa, Kentucky, Ohio, Puerto Rico, and the Islands US Virgins. So, you could open a franchise in 32 states and two territories with little to no expense beyond creating your FDD, franchise agreement, and operations manuals.

Consider your concept.

Most good franchise models offer something remarkable but with a distinctive way of providing the product or service. The concept has to be attractive to both consumers and potential franchisees. The business should be something that you can standardize and duplicate.

Review your finances.

Franchising is easier if you have at least one very successful operation and better if there are two or more successful locations. Your financials will provide you with an overview of your operation, providing continued growth and profitability for two or more years.

Gather market research.

Obtain market research to verify that there is widespread consumer or business demand beyond your location for what your franchise business would present and the ability of the market to support a new entrant.

Prepare for the change.

Franchise activities are very different from those of a single business. For the most part, you will be selling franchises and supporting franchisees, rather than performing your normal business duties. Will you be comfortable playing a role as a trainer and salesperson, selling to and supporting franchisees? You’ll also give up some of the direction you’ve had on how your concept is implemented. No two franchisees will run the business the same way you do, even if they do it well.

Evaluate other alternatives.

Not all businesses can be franchised and there are alternatives to expansion. You might consider finding debt financing or allowing partners into your business. You might even consider a strategic alliance or joint venture where you combine your business with other businesses that offer similar products or services to your business without duplicating services.

Know the legal requirements

The FDD is not required to file with ANY federal government agency! In 35 states, a franchisor can immediately “sell” in those states as long as the franchisor provides the potential franchisee with a current FDD at least 10 business days before any contract is signed or any money is paid. In these states, a franchisor is not required to “file” or provide a copy of the FDD to anyone except the prospective buyer.

The other 15 states have additional “franchise sales” requirements. These 15 states have franchise speculation laws that require franchisors to provide pre-sale information to potential buyers. In these states, a franchisor must register with that state by submitting the current FDD and meeting additional disclosure requirements. 13 of these state laws treat the sale of a franchise as the sale of a security. These states prohibit the offer or sale of a franchise within their state until an FDD has been filed with a designated state agency. Only 2 of the 15 states do not require filing at their state FDD offices.

Some states, in an effort to promote commerce in their states, will allow 1-3 franchises to be sold under exempt status. There are a variety of other exemptions offered by these states that should be considered by both franchisors and franchisees. These 15 states are often called “registration states” or “filing states”. While state laws often vary, the primary purpose of the state is to protect its citizens from investment scams and to have a remedy if a franchisor violates state laws. The main goal is to make sure that the franchisor discloses all the important facts before the sale of the franchise so that the prospective buyer can make an informed decision.

A franchisor must, and usually does, screen the potential franchisee to determine his or her suitability; the franchisee must investigate the potential opportunity. First, a potential franchisee must understand what FDD is and what it is not. Since the advent of FDD’s “plain language” rule, it is much easier for the potential franchisee to better understand what is being sold and what is being bought.

Make important decisions about your model

As you organize your legal paperwork, you’ll need to make a lot of assessments of how you’ll operate as a franchisor.

• The franchise fee and royalty percentage

• The term of your franchise agreement

• The size of the territory that will be granted to each franchisee

• What geographic area are you willing to offer to franchisees?

• The type and duration of the training program you will offer

• If franchisees must buy products or equipment from your company

• The business experience and net worth that franchisees need

• How you will market the franchises

Whether you want one owner-operator for each unit or area master franchisees developing multiple units

Many franchisors do not consider how much each of these decisions may affect their imminent profitability. If you’re considering a 5 or 6 percent royalty, the difference doesn’t seem to be substantial. But then when you have 100 franchisees each making $700,000 a year, that’s a $7 million a year error. If he’s on a ten-year deal, that means $70 million in lost revenue.

Make sure you know if geographic variables, such as weather or local laws, can affect franchisees’ achievements. The size of the territory is also important. Territories that are very large may have to be bought back later with a bonus in order to split them up. Poor training can leave your franchisees ill-equipped to run your system successfully.

Create the necessary documentation and register as a franchisor

The operation of your franchise in states without registration can begin as soon as you have all your documents and manuals correctly completed, as well as your training materials. In other cases, you will need to wait for state approval.

Hire key employees

Additional key employees will be required to operate properly. Certain franchises will need staff to maintain line items, help desk staff for software companies, and other staff. You might consider hiring someone to handle the training, as well as a franchise advocate to answer questions from franchisees. Marketing managers, creative people and operations may also be needed.

Sell ​​Franchises

One of the most important tasks you face is finding franchises. To help stimulate interest, you could offer a referral fee to anyone who sends a new franchisee to the business. Other common sales methods include attending franchise fairs or hiring freelance franchise marketing companies to help find investors. Selling franchises is difficult due to the high risk involved for franchisees. Your salespeople need to know your business well and be able to tell a compelling story about why it’s worth your time and money.