Franchising Your Business

Many business owners imagine expanding their business by franchising. As a first step, owners must determine whether their business concept is “franchiseable” and evaluate the advantages and disadvantages of franchising. Assuming you are ready, willing and able to move forward after that, there are several steps to franchising your business.

1. Choosing a franchise model. There are several types of franchise models for business format franchising: Single Unit, Multi-Unit Development, Area Representative, Conversion, and Master Franchise. The decision to go with one over another is strategic and requires that franchisors consider how they want to expand their franchise and what type of franchise operators they want to have. A choice must be made before preparing the Franchise Disclosure Document (FDD) as the decision will affect the FDD significantly and may require preparation of additional disclosure documents and/or agreements.

2. Creating the Franchise Disclosure Document. The FDD contains information about the franchisor and the franchise system. The Federal Trade Commission and state regulators require franchisors to provide the FDD to potential franchisees to help them make an informed decision about whether to buy the franchise. The FDD outlines the essential business terms between the franchisor and franchisee, including fees, territories, initial investment requirements, training and support, and other provisions.

3. Developing an Operations Manual. Franchisors are required to outline their obligations to help support franchisees before and after operations begin. Part of this assistance involves loaning the franchisee a copy of the franchisor’s operations manual (“Operations Manual”). The purpose of the Operations Manual is to ensure franchisees provide and customers have a uniform brand experience across locations. It is also a guide and training tool for franchisees.

4. Registering or filing in states where required. Some states have additional requirements to protect franchisees. In “franchise registration” states, franchisors must register their FDD prior to offering a franchise within that state. In “franchise filing” states, a notice must be filed with the state regulator before selling a franchise. Franchisors must take great care not to advertise, make offers to sell, or make actual sales, in any state unless they have complied with these rules.

5. Providing compliance training on franchise sales laws. After preparation of the FDD and before starting to offer the franchise, all individuals who will be involved with marketing and selling the franchise should receive appropriate training to ensure compliance with franchise sales law. In addition, franchisors should familiarize themselves with their ongoing compliance requirements.

Franchising is not right for everyone, but when done well, it enables business owners to grow their brands quickly and economically. If you are considering franchising your business, contact Lusthaus Law to help you through the process from beginning to end.