Becoming a franchisor can take a lot of planning and involve a significant investment of time and money. If you own a small business with a unique concept that can be easily copied, franchising might be a great way to expand quickly. Learning about what franchisors do and how to become one can help you decide if this is the right path for your business.
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What is a Franchisor?
A franchisor is a person or company that gives a license to a third party, allowing them to open a new location and sell products or services using the franchisor’s brand, knowledge, or expertise. The franchisor is the original business that sells the right to use its idea and name.
What Does a Franchisor Do?
The franchisor chooses qualified people who understand the franchise’s concept and agree to follow the system the franchisor created to keep everything consistent. The franchisor ensures that all locations meet these standards and steps in if any location is not meeting expectations.
The franchisor also updates the product or service based on market trends and customer needs. They work on improving the systems already in place and provide franchisees with tools and processes for training staff, as well as for advertising and setting up store displays.
How Do You Become a Franchisor?
Here are some basic steps you can follow to become a franchisor:
1. Determine if Franchising Is Possible
Consider if your concept is appealing to both customers and potential franchisees. Think about whether your business can be made into a repeatable system. If your business needs your personal involvement to succeed, franchising may not be the best choice.
2. Get Organized
Plan out how your business works, from marketing to employee training. Create an operations manual that includes your best practices and policies. Develop a system for approving major business decisions.
3. Find a Franchise Lawyer
A lawyer can guide you through filling out the Franchise Disclosure Document. During this process, you will set pricing, create the franchise agreement, and take steps to protect your intellectual property.
4. Be Selective When Choosing Franchisees
Carefully review applicants who want to franchise your business. While some people may have the money to start, they might not have the right experience or understanding of your concept. Since this person will be representing your brand, it’s important to evaluate them closely during interviews.
5. Establish and Enforce Brand Guidelines
As a franchisor, your brand is one of your most valuable assets. One of the biggest risks of franchising is allowing others to represent your brand. You can monitor new franchisees by watching their social media activity to make sure they’re representing the brand properly.
Frequently Asked Questions About Being a Franchisor
What is the difference between a franchisee and a franchisor?
The franchisor is the original business owner who created the business model. They guide the process. The franchisee is the person who buys into the franchise and runs a new location under the franchisor’s brand.
How does the franchisor make a profit?
Franchisors make money by charging fees, including:
– Franchise fees: Franchisees usually pay an upfront flat fee when they sign the franchise agreement. This fee often includes the right to use the brand, sell the product or services, and access to training and operational support. Some franchisees also pay an annual fee.
– Royalty fees: As a franchisor, you usually receive a percentage of each franchise’s monthly sales.
– Add-on fees: Some franchisors charge additional fees, requiring franchisees to buy certain equipment, ingredients, or promotional materials directly from the franchisor. The franchisor may either sell these items or arrange for a manufacturer to sell them, receiving a portion of the profits.
What’s the benefit of turning your business into a franchise?
Franchising allows businesses to grow quickly while giving others the chance to run their own business using a proven formula for success.
