In my over three decades as a franchise consultant, I am often asked “What makes one franchise program succeed while another franchise program doesn’t?”
Rarely is there a single reason for success or failure in a franchise program.
Here, I will examine some of the factors that can help you succeed in your franchise program.
This month, I would like to tackle a few FAQs about franchising:
Q. Why do I have to create a franchise program? Why can’t I just call it a license and skip all the paperwork?
A. U.S. courts have ruled that a franchise program has three elements: 1) the use of a common name, 2) the payment of a fee (even a fee as low as $500) and 3) the rendering of assistance (the creation of a marketing plan has been deemed assistance).
If your expansion program has these three elements, it is legally a franchise program and subject to federal and sometimes state franchise laws. It doesn’t matter what you call it.
Q. Why should I go to the trouble to create a franchise program?
A. Unless your company is blessed with unlimited funds, you probably cannot grow as quickly as you would like. Because a franchise program allows you to grow your business using the funds, energy and managerial skills of others, it allows you to expand more rapidly.
In addition, you can generate substantial funds through a well-crafted and executed franchise program. Depending upon the business and the revenues generated, you may earn in royalties $50,000 to $100,000 or more per franchise location per year.
You may generate additional funds through initial franchise fees, the sales of products or services to Franchisees and franchise real estate programs.
Q. What is involved in creating a franchise program?
A. Unless you or your Franchisee is located in a franchise registration state, typically the only legal requirement to launch a franchise program is the drafting of a proper Franchise Disclosure Document and Franchise Agreement.
As a practical reality, you will also have to write one ore more Operations Manuals to describe all the particulars about how to open and operate the business. Some type of marketing materials and marketing campaigns will be needed as well.