About Franchising

Create a Franchise Company with FranSource

To create a franchise, companies must ensure they follow the requirements mandated by the FTC Franchise Rule. FranSource and our affiliated franchise attorneys provide “franchise a business” advice to businesses that desire to expand through franchising to ensure they fully comply with the FTC Franchise Rule. For businesses that are serious about developing and growing a successful franchise operation, it is advisable to work with qualified franchise professionals with the experience and expertise required to properly franchise a business.

Franchising Defined

The Federal Trade Commission defines a franchise as:

“a continuing commercial relationship where a franchisee pays a required fee to operate a business, identified by the franchisor's trademark, under the franchisor's significant control or significant assistance with the method of operation.” The SBA ultimately considers a business relationship between two parties a franchise if it meets three key elements of the FTC Franchise Rule. The three elements include:

1. The license of a trademark;
2. Having significant control over the operator’s business operation; and
3. Making a payment to the company of $500 or more either prior to opening the business or during the first six months of operations.

You can learn more about the FTC Franchise Rule here. This is the primary source for what is involved if you wish to create a franchise company.

Considerations to Create a Franchise

When creating a franchise company, the most widely used model is called a “business format” franchise. To franchise a business under this model involves the “franchisor” (the franchise company) granting a “franchisee” the right to market goods and/or services, typically within in a specified territory, using the franchisor’s trade name and proprietary system of operation. In exchange, franchisees typically pay an initial franchise fee, an ongoing royalty fee, and an advertising/brand fund fee. The franchisor dictates processes and procedures franchisees must follow relative to the development of the business, the opening of the business, and the ongoing operation of the business. To assist franchisees in launching their franchise, franchisors provide various training and support that may include site selection assistance, initial franchise training and ongoing training, onsite opening training and assistance, approved sources of supply, local advertising and marketing programs, and much more.

Many established national and international companies have chosen to create a franchise due to the fact that franchising provides the opportunity for maximum market penetration while minimizing the company’s financial risk and contingent liabilities. At the same time, franchising permits the franchisor to maintain significant controls over the individual franchise locations, thereby protecting the brand and system. Franchisees benefit by investing in a proven system of operation that eliminates many of the issues and pitfalls associated with deploying a business from scratch.

When considering whether to create a franchise, it is important to recognize that franchising offers tremendous advantages over the high capital costs associated with corporate expansion in addition to the infrastructure and employee issues that accompany this method of expansion. Issues associated with managing, recruiting, training and retaining employees as well as the responsibilities for the day-to-day operations of the individual locations are dramatically reduced under a franchise expansion model. Additional benefits of choosing to create a franchise include cost savings that can be achieved by the franchisor and franchisee from volume purchases of products, increased advertising and marketing spends leading to increased brand recognition, and the ability to require franchisees to adhere to the franchisor’s requirements and specifications, which help to ensure consistency between the individual locations.

Each year, tens of thousands of would-be entrepreneurs choose to invest in a franchise model rather than go it alone. They seek to minimize their risk by purchasing a proven system of operation that enables them to operate a profitable, successful business sooner, and typically less expensively, than most independent startups. Franchisees benefit tremendously by joining an established and successful brand that has already demonstrated the demand for its products and/or services in addition to providing a proven system of operation, training, and support to the franchisee.

The franchisor benefits from the fact that a franchisee is an owner whose own capital is at risk, rather than a hired employee. Franchisees are much more motivated than an employee to ensure that their businesses grow and operate profitably. This solves a major problem experienced by most businesses today related to hiring and retaining qualified and motivated employees when expanding their business operations.

Under a franchise system, the day-to-day operation of the franchise business is the responsibility of the franchisee and/or the manager. Consequently, the franchisor is freed to focus on business development, product and/or service research and development, advertising and marketing, franchise training and support, and providing administrative and/or technical support to franchisees.

We encourage you to complete our 15 Key Questions Franchise Quiz as an initial indicator as to whether your business is ready to franchise and to help us mutually determine if franchising is the best method of expansion for your business.