We begin our list of franchise frequently asked questions with one of the most common questions we receive from prospective clients. Determining when to franchise your business begins by first evaluating the entire business operation — its products and/or services; staffing and management; site and location requirements; equipment, fixtures and furnishings; employee training protocols; trade dress; customer service and satisfaction; sources of supply; advertising and marketing programs; etc. This will help you determine whether each component of your business has been fully developed and systemized to the extent that others can be trained to duplicate the entire operating system. This may be validated through the opening of additional company-owned locations that experience similar levels of success. The evaluation process should include analyzing key competitors in order to identify the company’s unique attributes/competitive advantages in addition to determining whether other geographic areas are conducive for the company’s products and/or services. Experiencing great success in a single market is no guarantee that the same level of success can or will be achieved elsewhere. A final step in the evaluation process includes determining whether the company’s current management team is qualified, willing and available to assist others in developing, opening and operating additional locations. It is crucial to the success of the franchise company and its franchisees that the company’s infrastructure be designed to support the high level of assistance, training and support typically required by franchisees.

Simply put, being committed to helping your franchises succeed is one of the major factors. In addition, providing franchises with a proven and profitable system of operation, training them to follow your system, and motivating them to perform at their highest levels are all huge factors in developing a successful franchise operation.

When you visit a successful franchise concept, what do you see? Hopefully it is their CONSISTENCY of operation. You confidently expect that no matter which location you visit, you will receive the same “experience” every time. Which means that the franchisor focused on the top priority…training their franchises to operate the business according to the franchisor’s proven system…and motivating them to do so. A few questions you should ask when evaluating franchising your business include:

• Is your existing location(s) profitable?

• Does the required startup investment provide an acceptable ROI?

• Can your system be taught?

• Is your concept viable outside your existing area(s)?

• Can you motivate others to perform at their highest level?

• Can you instill a desire in individuals to hold true to your company’s beliefs and values?

If you can answer “yes” to these questions, you have the potential to be a successful franchisor. Please also review the 15 Key Questions you should consider when evaluating franchising your business.

While it is impossible to guarantee a specific level of success, FranSource performs a great deal of due diligence prior to committing to developing a company’s franchise operation. We do so to ensure that our clients will be successful. For clients selecting our Franchise Essentials Development Program, a portion of our fee is directly tied to the sale of your initial franchises. With a personal stake in the successful launch of the franchise, we are careful to only work with companies that we are very confident will be successful. From a statistical standpoint, research indicates that a new franchise company will sell approximately 3-5 franchises during their first 12-18 months of operation. For the majority of our clients, the first two to three franchises granted provide a complete return on their development costs.

The short answer is that a lack of profitability does not necessarily mean that the franchise will be unattractive to prospective franchisees. However, there must be acceptable justifications as to why the business is not profitable. For example, if you incurred expenses beyond those expected for a typical individual franchise location, your financial statements may indicate this (if you elect to make Financial Performance Representations in Item 19 of the FDD). Most franchise prospects will review the company’s Financial Performance Representations with their CPA as part of their due diligence. Their CPA will be able to advise them concerning any extraordinary expenses and the impact they have had on profitability. The CPA will identify those expenses that a franchisee should not incur as part of the franchise operation and assist in producing a pro forma that more accurately reflects a typical franchise location.

For the majority of states in the U.S., it is not necessary to have a federally protected trademark in order to begin franchising. The franchisor must simply disclose in the FDD that the trade name is in process of being registered.

When franchising, a franchisor is granting a franchisee the right to operate their business using the franchisor’s trade name. For this reason, it is important that the franchisor’s trade name (and trademarks) be protected, which requires registering with the United States Patent & Trademark Office (USPTO). Since the process to register a trade name/trademark takes an average of one year to complete, it is important to commence registering the company’s trade name early in the development process. FranSource works with a number of experience trademark/patent attorneys to register copyrights, patents and trademarks.

Please note that there are a few “non-registration” states that require a state or federally protected mark as a condition of being exempted from their business opportunity laws. However, in lieu of an approved trade mark, a franchisor may simply file under the Business Opportunity requirements of the state until such time as the trade name has been registered by the USPTO. Please contact us for additional details.

As previously stated, a successful franchise starts with a system of operation that is duplicable. Many independent businesses operate with little written documentation. The best advice we can give is “write everything down.” This means making notes on the processes and procedures required to successfully develop and operate your business. This does not mean you have to write a novel. What is important is that you have the basics of the system written down. Make notes…jot down ideas. This information will aid you greatly when you begin developing your franchise operation.

There are a number of variables that impact the franchise fee and royalties charged by a franchise company. They include the sophistication of the system, the length of the training program, the franchisor’s costs related to acquiring a franchise (i.e. advertising, sales, materials), the initial support required to get the franchise up and running, and the potential return on investment for the franchisee. Additional considerations relate to the supplies, materials, or inventory that may be included with the franchise, the type of advertising and marketing support provided by the franchisor on an ongoing basis, and the size of the franchise territory being granted.

FranSource assists our clients in determining the appropriate fees based on industry research and a detailed analysis of the franchise offering. Please review our blog, “Determining the Initial Franchise Fee” for additional information.

First of all, franchisee initiated lawsuits are fairly rare when you consider the number of franchise companies and franchises that exist today. Second, the key to avoiding conflict and litigation is to ensure that you provide the training and support necessary to help your franchises be successful. If franchisees are making money, very rarely will they be tempted to initiate a lawsuit against the franchisor. In addition, care must be taken to ensure that the franchisor’s legal documents are in compliance with all applicable state and federal laws and regulations. Failure to do so will make it much easier for a franchisee to prevail in a case against a franchisor.