Tim Hortons storefront - Franchise empire in 8 steps

Do you think your business is poised to become the next Subway? Are you ready to take on the world of education businesses with a unique twist on an established idea? If so, you might be thinking about franchising as a business growth strategy. In fact, you may be convinced that franchising is your route to world domination, but are not sure exactly how to get started.

Establishing your own franchise is not a simple process, and is not something that you’re going to accomplish in 30 or even 60 days, with a couple of thousand dollars. Becoming a franchisor is a long, expensive, time-intensive process.

To help you out here, we’ve broken down the process of building a franchise empire into eight steps. Notice we didn’t say eight easy steps, or eight simple steps — there is nothing simple, easy, fast, or quick about becoming a franchisor. But, if you are confident in your brand, have a profitable business, have completed a thorough due diligence process, and possess the right amount of capital and drive, you just might be able to build the next Tim Horton’s.

Before we get into the steps involved, there is a caveat: These steps provide an overview. The exact process for each business is going to be different, depending on the product(s) or service(s) offered, the market, the location, growth strategies, target customers, the business model, and so on. With that being said, let’s dive in!

The 8 Steps to Building a Franchise Empire

Ask yourself the tough questions – Before you even consider entering the franchising world, you’ll need to have a long talk with yourself, focusing on some very specific questions. How you answer each of these will be an indicator of your readiness and willingness to start up a franchise, and can help gauge your commitment to long-term success.

  • Am I ready to become a franchisor? This means going from running the day-to-day operations of your own business to overseeing the operations of an entire franchise, from design to recruiting to supporting others in the running of their businesses. To do this successfully, you'll have to dramatically shift your mindset.
  • Is my current business model successful? Are you generating enough profits to make this an attractive business prospect that others will be interested in?
  • Can I easily replicate and scale my current business model? If the success of a business is too reliant on a certain geographic area or feature, on your own work ethic, or on one specific personality type, then it may not translate well across different markets. You need to determine whether your business can be streamlined and duplicated.
  • Can I convince other people to buy into my business? Does it have that “sexy” factor that will set it apart from others in the market?
  • Can I show proof of a solid return on investment (ROI) to potential franchisees? Does your financial model reflect potential profit growth for future franchisees?
  • Am I committed to providing value? Are you interested in growing your franchise business the right way, or are you just concerned about hitting a target number without supporting franchisees as they build their businesses up? Make sure your motives line up with your offering.
  • Do I have the money to fund the startup of my franchise? Starting a franchise is not cheap. Expect to pay anywhere from $75,000 to $150,000 or more to get your franchise underway. This money will go toward legal documents, manuals, training programs, marketing materials, recruiting new franchisees, operating expenses, an attorney, and perhaps a franchise consultant.

Your answers to these questions will help determine whether you’re ready for franchising, or if you need to do some foundational work on your mindset and your business before going any further.

Know your business – You must know every tiny aspect of your business inside and out before you consider franchising. You may be thinking, “Of course I know every aspect of my business. I built it.” However, with franchising, you have to be able to document (and be specific about) each and every detail. That means documenting systems, processes, recipes, suppliers, distributors, marketing and advertising strategies, branding techniques, aesthetics, accounting, legal issues, and of course, operations. You must be able to turn all of this over to a franchisee, in one neat package, so they can replicate your business from day one.

Finalize your business model – Determine how you are going to structure your franchise business. Here, you need to consider:

  • The franchise fee
  • Royalties
  • Territory
  • Terms of the franchise agreement
  • Product sourcing
  • Distribution
  • The training program and tools
  • Marketing
  • Advertising (including fees)

Prepare your legal documents – At this point, it’s time to prepare your Franchise Disclosure Document, which you must complete in order to comply with federal regulations regarding the sale of franchises. This document will outline every aspect of your business for prospective franchisees, and is also the document that will be on file with the Federal Trade Commission (FTC). Therefore, you will need to work with a franchising attorney to make sure it is complete and accurate.

You will also need to prepare a franchisee operations manual, a training manual, and a franchisee license agreement. If you have not already, be sure to register your trademark. Certain states in the U.S. may have additional franchise regulations — check with your attorney to ensure that you’re staying in compliance.

Plan your growth – Most successful growth strategies will be natural to the brand. When a business has a super-aggressive growth plan that is unrealistic or infeasible, that’s when they get into trouble. Having a plan that is appropriate to your business, your market, and your customers will set you on the best path toward success. Putting growth strategies in place will also help forecast your resource allocation. You’ll want to be able to focus on your current franchisees while still maintaining the overall growth of the brand.

Choose your franchisees wisely – Not everyone who shows interest in being your franchisee will be a good fit. Remember, enthusiasm does not equal competence! Make sure you have a process in place to screen your prospective franchisees in order to determine whether they will be a good fit for the brand and your business model. After all, those who are the best fit will have the greatest chances of success. Examine the business acumen, background, and experiences of each candidate, in combination with their enthusiasm and drive, before making your choices.

McCafe truck with lineups - Franchise empire in 8 stepsSet boundaries – No matter how thorough you are in your documents and procedures, there will be differences from one franchisee to the next. Each franchisee will bring their individual personality to work, and with each franchise unit, the employees will be different, as will the market and customers. You'll need to decide how much leeway each franchise owner is allowed to have while still maintaining the integrity of the brand and adhering to its business model. Keep in mind that the franchisees will be running their own businesses, so it’ll be necessary that you find a workable balance between your restrictions and their input.

Support all franchisees – If your franchise is selling like hot cakes, it is important to have a strategy in place that will ensure you’re offering the same level of support and attention to your first franchisee as your 100th. It will be tempting to focus on recruiting new franchisees and getting them through training to opening day, but don’t forget the ones who have been in business for two to five years and still need support from the head office. They are as important to the system as each new franchisee, and can be your best recruiters, so it makes sense to keep them happy.

Eight Steps to Building a Franchise Empire: A Review

  1. Ask yourself tough questions about your business model and finances to determine whether you're ready to go ahead with this.
  2. Ensure that you know every aspect of your business inside and out, so you can document it for your franchisees.
  3. Finalize the structure of your new empire, paying close attention to the 10 aspects of your business model listed above.
  4. Prepare your legal documents, such as your Franchise Disclosure Document (FDD) and operations manual.
  5. Choose specific strategies for growth and put them into place.
  6. Select your franchisees wisely, based on business acumen and experience, remembering that enthusiasm doesn't always equal competence.
  7. Set boundaries, finding a workable balance between subjecting your franchisees to restrictions and allowing them to have input.
  8. Continually offer support to all your franchisees, including the ones that have been in business for two years or more.

It's Worth the Work

With these eight steps, we’ve examined just the very tip of the franchising iceberg. Each step encompasses dozens of smaller steps and requires a lot of time, resources, and attention. You’ll need to carry all steps out with caution and diligence, all the while running the day-to-day operations of your existing business. This may sound difficult, but for those who persist and are dedicated to doing whatever it takes to see their franchising dreams succeed, the payoff can be greater than you’ve ever imagined. One day, you may see your own brand operating in locations all around your region or country.

To stay up to date on the latest franchise news, to learn more about franchising or a particular franchising opportunity, and to gain access to our complimentary collection of franchise disclosure documents, sign up for your free membership to Birkhoff Research Group»
 

image 1: Canadian Pacific (Creative Commons BY-NC); image 2: Ian Muttoo (Creative Commons BY-NC-SA)
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