Creating a franchise business increases capital and brand equity. It offers unlimited scalability, risk reduction, and motivated management. Ace Hardware Corporation and Servpro are extraordinary examples of successful American home service franchises that collectively generate USD 7 billion in revenue.

It’s possible to build your own franchise if you have a business with services, products, and operations that can be easily replicated. Opening a franchise requires a considerable amount of due diligence, preparation, and work. The franchising process — from start to finish — can take three to four months, and another two to six months before doors can open to customers.

Nonetheless, these are merely standard business procedures in the greater scheme of entrepreneurial success, as most franchisors are committed to long-term business goals. If the prospects of scalability excite you, then read on to learn how to franchise your own business.

What Is Franchising?

The International Franchising Association describes franchising as: “A method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.”

Pros and Cons of Franchising

Building a franchise system and its earning potential is alluring to many entrepreneurs, but it requires a lot of time and dedication. Let’s weigh the pros and cons.

Franchising Benefits

• Business growth: Making your business a franchise provides rapid, low-cost expansion, as franchisees have to cover the investment costs of staff and premises.
• Royalty income: As the franchise owner, you receive a one-time franchise fee and a percentage of a franchisee’s profits.
• Business Improvements: Franchisees may identify new opportunities that you may have otherwise been overlooked
• Freedom: Franchisees own their businesses, so you don’t have to concern yourself with micromanagement and can focus on business growth.
• System Control: Building a franchise system gives you control over how it runs. You have the right to optimize operations in the interest of maintaining consistency and business success.
• Motivated Managers: Because franchisees own their business, they’re generally more motivated to turn a profit.
• Improved visibility: Franchisors and franchisees can pool advertising spend that exceeds what they can individually afford to invest.

Franchising Disadvantages

• Ongoing training and support: You will need to develop a training program and provide ongoing support, so franchisees can successfully sell your brand.
• Time: Franchising requires a lot of time investment, especially when setting up a franchise model, and finding the right franchisees.
• Start-up costs: Knowing how to franchise your business is critical to success. You will need to invest capital into preparing legal documents, operating manuals, marketing manuals, and recruitment, for example.
• Low-profits: First-year profits are typically low. Initially, you may need to work closely with franchisees until they get into the swing of business.
• Not a bad business fix: Franchising isn’t a solution to provide capital injections into a poorly performing business. It should only be considered for businesses that are performing well.
• Early failures: If your first franchise fails, this may negatively impact your brand’s reputation and discourage potential franchisees. Overcoming this may require spending more than the allotted budget.

9 Steps to Franchising a Business

If you want to franchise your own business, you need to be clear about reaching your company goals. All steps should be realistic and founded on the very best business acumen and strategies that propel economic growth. Here’s how to turn your business into a franchise.

#1: Make Sure Your Business is Franchisable

You can’t put the cart before the horse, so before wondering how to start franchising your business, you need to assess whether your present business is actually franchisable. Franchising is the replication of an already successful business and should never be the testing grounds for a new or unproven business idea.

To start with, you should have a recognizable brand name, and there needs to be adequate demand for your products or services. Then, the business must be able to operate in numerous states, meeting regulations and compliance. It’s also important that your potential franchisee network can sufficiently scale.

Most critical is the ability to systemize and replicate business operations in a manner that can produce consistent results. That way, skills transfer is easier, and customer experience remains consistent. As a franchisor, you must be willing to invest in developing infrastructure and programs to support your franchise network. Business relationships require continual maintenance, and effort is required to build a becoming company culture.

#2: Get Advice and Develop a Franchise Plan

Running a single business is different from operating a franchise chain. It’s advisable to seek the help of a business specialist when developing your franchise plan, as they will be able to advise you on how to turn your company into a franchise.

A bona fide strategy will help focus your goals and objectives to expand and assist in monitoring where you are in the process of achieving your milestones. Regular referral back to your plan ensures you are executing the correct strategies and activities.

Your business plan should specify the following, among other considerations.

• The franchisees’ fees and the royalty percentage you’ll be paid
• The locations where you wish to open franchises
• Marketing strategies and commitments
• The type of business experience and capital franchisees require
• The type of training provided for franchisees
• Whether each franchise needs an owner-operator
• A vision of where you expect to be in 5 years time, and expected one-year increments to help achieve your vision
• How do you expect your organization to adjust as it scales
• A review of your current products or service and potential new ones

#3: Standardize Your Processes

Building a franchise system necessitates standardization across businesses. Business success is reliant on offering solution-based products and services coupled with seamless logistics, management, and customer service. You will need to document your current procedures and compile detailed operating manuals.

Typically, you should have two standard operating procedures (SOPs) manuals that become business blueprints and work as living documents. One outlines the procedures followed to prepare and deliver your product and service, and the other covers operational procedures such as bookkeeping, HR policies, and advertising, for example.

An SOP business consultant can help you formulate a robust SOP that includes organizational structuring, the definition of procedural owners and their KPIs, and reporting structures that eventually aid the seamless functioning of your franchise chain. You should also test your procedures with your first franchisee to learn where and how improvements can be implemented before further expansion.

#4: Be Wise in Choosing Franchisees

While the relationship between a franchisor and franchisee is not the same between an employer and an employee, the checklist used to vet suitable franchisees shares many commonalities. When it comes to making your business a franchise, selecting fitting franchisees is the most important investment you will make. Franchisees should be self-motivated, with the following attributes:

• Passionate about the business and its growth
• Know how to approach a franchise from a business acumen perspective
• The ability to maintain company standards
• Open to constructive feedback
• Have the capital needed to buy a franchise
• Possess realistic expectations

As part of due diligence, most franchisors get candidates to work in their businesses for a trial period, so they can get a feel for how the business works. This allows franchisors to evaluate if they have the skills, abilities, and personality to run a business. At the same time, it allows the franchisees to assess what the business is like off the paper and outside general perception.

#5: Provide the Right Support

To franchise your business, you need a Franchise Disclosure Document (FDD) that underlines the franchise agreement between parties at the time the contract is signed. This ensures responsibilities, duties, and expectations are clear. But, your responsibility as a franchisor doesn’t stop there. You will need solid support structures to rapidly roll out franchises.

The answer to how to franchise your small business also lies within training development and upskilling. Operational processes aside, your franchisees will appreciate and benefit from post-training support. Helping them keep abreast of changing procedures and market developments influences their and your success.

Offering management courses and employee training enables franchisees and their staff to make better decisions, whether proactive or reactive. Acquiring important communication tactics empowers everyone to act in the best interests of shared business goals. According to Harvard Business School Online, manager-owners perform a variety of tasks, but their primary objective is to “get things done with others,” which is why finessing communication skills is paramount.

#6 Sign On the Dotted Line

How to turn your small business into a franchise? Legalize it. All franchises require a Franchise Agreement that is simply a sophisticated form of License Agreement where the franchisor is either the proprietor or holder of certain intellectual property rights or technology, which he/she/they allow the franchisee to use in exchange for remuneration.

Protecting intellectual property is key to a Franchise Agreement and has to do with trademarks, copyright, and know-how. It precisely defines what and how the franchisee may use the franchisor’s intellectual property. Franchises go through a lot of effort to register their intellectual property, and need to protect them from abuse by other companies.

These agreements also include restraint of trade clauses to prevent franchisees from competing with the franchisor. This means they cannot start a competing business during or after a limited time period, or change their franchise branding when the agreement expires, only to conduct business under a new name at the same location.

#7: Build and Protect Your Brand

Consistent branding plays a critical role in knowing how to turn your business into a franchise. Branding is important for three reasons; it attracts new franchisees and must meet the needs of both individual franchisees and target consumers. Franchises inherently require a degree of physical and attitudinal consistency. And franchisees are ambassadors of your brand, which you must protect at all costs.

A brand encompasses a company's culture, beliefs, and attitudes. Its ethos trickles down to management, staff, and customer service. Having clear guidelines for the use of brand assets will send out a consistent message and maintain business standards. Some brands may even hire marketing companies to handle digital communication for this very reason.

#8: Understand the Key Numbers That Drive Growth

Comprehending key financial and non-financial metrics determines long-term success. As a franchise chain owner you need to know; sales revenue, net profit margin, gross margin, lead conversion rates, website traffic, retention rate, customer acquisition cost, and customer lifetime value. Establishing accounting systems and software with access to key numbers for each franchise can help you find opportunities and reduce risk.

Good franchise management software like serviceminder.io can organize and track your prospects and customers, as well as handle invoices and payments. Having a complete overview of your customers’ buying journey provided by a CRM enables you to improve customer service and boost productivity.

#9: Oversee Your Franchisees

Every aspect of your franchise chain will be affected by the strength of your relationship with your franchisees. As the franchisor, you have the right to expect a high quality of work necessary to uphold your business’s good standing. Checking in with your franchises, and offering mentorship, can go a long way in ensuring they adhere to these standards.

If you want to optimize your business, facilitating necessary feedback sessions after implementing new processes is important because good business relies on incremental changes that improve the bottom line. This happens through good communication and strong business relationships.

Conclusion

Building a franchise system is an extremely rewarding process that can turn a home service business into a household or even a global name. We hope our guide on how to start franchising your business has given you food for thought, and shed some light on the intricacies and processes of this business model. If you already have a franchise or are in the process of opening one, you’re probably concerned about driving growth. Our serviceminder.io software can help you keep track of what matters.