45 Truths About Franchising

45 Truths About Franchising – Ignore Them At Your Own Peril

“If you’ve ever even thought of franchising your business, 45 Truths About Franchising is a must read.” – M Ohsman, Restaurateur

Introduction

Franchising is a great way to expand your business.  It offers

  • Faster Growth
  • Major Upside Potential
  • Controlled Risk
  • Less Capital Outlay

Franchising can also present serious challenges for those with limited hands-on experience.   A good franchise consultant can help:

  • Determine if franchising is a good fit for you
  • Guide you through the entire franchising process
  • Work with your franchise attorney to create the required documentation
  • Develop your franchising business plan
  • Create you Operations and Training manuals
  • Build your Brand with a consistent, compelling message
  • Develop your franchising website and other critical marketing materials
  • Set up a workable sales process and train your sales staff
  • Work with you to construct a workable budget for marketing your franchises
  • Monitor your progress and remain your “On-Call” advisors
  • Create a “Lifestyle Business” for you

Contents: 45 Truths About Franchising

We wrote 45 Truths About Franchising – Ignore Them At Your Peril, to give you a head start on deciding whether franchising is right for your business.  For your convenience we grouped the Truths into six key areas:

  • Truths About Deciding To Franchise
  • Truths About The Economics Of Franchising
  • Truths About You, the Franchisor
  • Truths About Franchise Consultants
  • Truths About Franchise Attorneys and Franchise Disclosure Documents
  • Truths About Franchise Marketing

We share these 45 Truths with you in hopes of increasing your understanding of the requirements and processes of franchising your business.  We believe that, “To succeed in franchising, it helps to know your way around”.

11 Truths About Deciding To Franchise:

  1. Franchising accounts for nearly half of all retail sales in America.
  2. You will need at least one profitable operating unit (but preferably two or more) before you should offer franchises.
  3. Keep in mind that franchisees are buying a concept, a system and an income stream.
  4. When calculating the profitability of your units, make sure you include, as an expense item, compensation for the manager or owner. Without this the results will not be accurate.  Remember, the franchisor expects to make a reasonable ROI.
  5. The operation of your business must be teachable and not based on your personal talents.
  6. You absolutely, positively need a trusted franchise advisor/consultant to help you to improve operations and corporate governance, aid you in developing and implementing a marketing plan and avoiding problems you may never see coming.
  7. Your business needs Intellectual Property (IP) and Trademarks that are unique to you.
  8. Most, if not all franchisors have confidential trade information including such things as marketing plans and research, customer lists, formulae, recipes, etc. The rights to use these are conveyed to the franchisee.
  9. The reputation of the franchisor’s brand conveys immediate benefits to franchisees who open businesses in an area where the brand is known.
  10. Many of the advantages of a franchise are the result of common standards, business strategies and decisions made by the franchisor that apply to all franchised outlets. Just as these strengths can make a franchise chain strong and prosperous, bad decisions or poor implementation can hurt network-wide profitability.
  11. There is more than one kind of franchising, make sure your attorney and consultant understand all six kinds and help you choose the best one for your company.

7 Truths About The Economics Of Franchising

  1. Franchisors always plan for faster growth than can usually be achieved. Keep your expectations in line.  If you don’t know what to plan for, ask your experienced franchise advisor.
  2. Franchisors should never plan to use Franchise fees to fatten their bottom lines. Most franchise fees are used 100% getting the franchisee sold, trained and open.
  3. Royalties are the franchisors’ reward for a successful franchise.
  4. Most prospective franchisors underestimate the capital needed to bring their franchise concept to market.
  5. Franchise royalties can provide capital for continued growth.
  6. When calculating whether your franchise is a “good deal” for the franchisee, mentally subtract your royalty percentage from the profit of your operating units because this is the reality the franchisee will be facing.
  7. You want your franchisees to make money so you can sell more franchises. Franchisees must make a good ROI after deducting the royalties they pay to you.  Price your franchises and set royalties accordingly

6 Truths About You – The Franchisor

  1. You are probably a great businessperson; but that doesn’t make you a competent franchisor. Put your ego aside and hire an experienced expert.
  2. If you have an authoritarian management style you may not make a good franchisor.
  3. It is critical that you, the franchisor, be a “mentor” to your franchisees – not a “boss”!
  4. Franchisees are management with “Skin in the Game” and need to be treated as such.
  5. Too many good franchise concepts have been ruined by consultants who do, say or promise almost anything to get a client signed. Find a consultant you trust to put the interest of the company before their own pocketbooks.
  6. Franchisors should always try to build a community of like-minded people that can collaborate to propel the system to new and greater heights.

7 Truths About Franchise Consultants

  1. Franchising is a highly regulated and specialized business. You should seek out qualified experienced Franchisor Consultants. and Franchise Attorneys.
  2. In picking an expert consultant look at their documented successes. It’s not the number of clients they’ve worked with, but how successful those companies are and how long the consultant worked with the clients.
  3. Your program is special and unique, look very carefully at what the expert produces, you don’t want boilerplate intended for another business or type of business that suddenly becomes the basis for your franchise. (We have seen operations manuals that were copyrighted to other companies.)
  4. Ask what expert works directly with you, staff seldom has the real expertise, work one on one with the real expert.
  5. How long have their clients remained using the expert. A good franchise expert should have clients that have continued to use them for many years. Franchising is complicated and good advice never grows old.
  6. Good franchise consultants should base a portion of their compensation on performance so you “share the risk and the rewards”. Beware those who ask for full payment regardless of your success – especially in advance.   Be careful with consultants who offer their services for little or no upfront cost.  The devil is in the details – and the details could cost you plenty – even a big chunk of your company.
  7. Consultants that make franchising sound quite easy are usually quite wrong. It takes expertise, experience and contacts to successfully market a franchise.

7 Truths About Franchise Attorneys And Franchise Disclosure Documents

  1. Franchising is a highly regulated and specialized business. You should seek out only qualified experienced franchise attorneys.
  2. General practice business attorneys often do not have the required background and experience of an attorney specializing in franchise law.
  3. Always choose your own attorney to represent your interests. Avoid using “In-House” attorneys or attorneys too closely affiliated with your consultant.
  4. Each Franchise must have their legal papers in order. The Franchise Disclosure Document is the “Constitution” of your business system.
  5. FDD Item 19 is the only way to represent potential earnings to a franchisee. Any other representation can get you into trouble…including writing a number on a cocktail napkin (this was the basis of a famous lawsuit the franchisor lost!)
  6. Some franchise attorneys will work on a lower upfront fee for service and accept a “bonus” based on your sales of franchises. This arrangement can cost a bit more in the long run but it limits your exposure and stretches initial capital.
  7. A franchise consultant should never prepare your legal documents. Franchise attorneys dislike “reviewing” legal docs prepared by consultants and many will decline the work due to potential liability related to deficient documents.

7 Truths About Franchise Marketing

  1. You have to kiss a lot of frogs to find a prince. Most franchisors report working through 75 – 125 leads for each franchise sold.
  2. The average time to work a lead to a successful conclusion is 8 – 12 weeks.
  3. Marketing your franchise costs moneyProbably more than you think.  The more aggressive your sales goals, the more aggressive your lead generation program should be and the more you’ll have to budget.
  4. Trying to franchise on a shoestring budget makes the process take longer and the chances of success dwindle.
  5. Franchise marketing requires a specialist to create your franchising webpages, marketing message, advertising copy, sales hot buttons, and identify the right target market. Major mistakes on any of these kill your chances and set you back months.
  6. Lead generation is often the most difficult and costly part of marketing your franchises. The decisions you face on target market, lead generation sources, trade shows will be critical to the success of your project.
  7. Brokers usually charge 25% – 65% of the Franchise Fee and often have a minimum charge of $15,000 or more per sale. The benefit of brokers is that they only get paid only when a franchise sale closes and you receive payment.

Well, there you have it.  45 Facts – 45 TRUTHS About Franchising.  Some, we’re sure, made you excited and eager to enter the world of franchising.  Others probably gave you pause and something to think about.  You see, this is a huge decision for any small business, so be wise, be careful, and always do your homework,

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Also see my article,

About the Co-Author of 45 Truths About Franchising

Jack Eberenz

A highly respected Franchise Executive for over 35 years, Jack has helped dozens of companies start and grow their franchise networks.  Jack has been a franchisee and a franchisor and currently sits on a number of Boards of Directors and is Chairman of Progressive Garage Doors, a franchisor with over 75 franchisees nationwide including:

“When we decided to franchise our business our first decision was the most critical to our success – both short and long term – choosing our expert franchise consultant.  It was a little surprising to find 5 out of 5 franchise lawyers from two different states referred us to Jack Eberenz.  It wasn’t a surprise after speaking with Jack why so many respected franchise lawyers are confident in referring him.  After two years of Jack’s directions, guidance [and] unwavering support, we are successfully operating multiple profitable units.”

Dave Pappas, Fingerprint Express

“Jack is the GO TO guy in the franchise industry. He has a long track record of successes in the industry an can help you turn it around if it can be done. I would, and do, highly recommend Jack to anyone I know in the franchise industry. He is a consummate professional and will treat you fairly and with integrity.” 

Jonathan Reese, Republic Bank

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