The whole notion of franchising involves various steps in order to carry out the process. In most of the cases the steps remain the same except for a few exceptions which might come in certain special circumstances. Franchising the business involves the following major steps: strategy for expansion, preparation and submission of legal documents, operations manual for the franchise and the relevant supporting material for marketing purposes. These are the major milestones that need to be done in order to franchise the business and how to franchise? Below are the steps along with the explanation of each that are required to franchise the business.
1. Appropriate and strategic business planning:
After the decision of franchising is made and finalized then the first step which comes after that involves future planning for the business and devising the strategies. In order to meet the goal, a franchisor should devise a business plan along with suggesting the strategy and required growth that needs to be achieved in future by the company. This growth and strategy needs to be devised for a future time period of at least five years. Moreover, certain other requirements are also essential to franchise the business along with strategic business planning. By these requirements the franchisor must be sure of the fact that this step requires new capabilities on the part of his organization. So, before franchising, he needs to make sure that these capabilities and requirements should be present in his previously functioning organization structure.
2. Operations Manual and Training sessions:
As already mentioned above that the making of operations manual of the franchise is a vital step for franchising. Operations manual is actually the tool which will serve the purpose of satisfying the target person that the organization is fully capable of efficiently dealing with the expansion through franchise. Moreover, it will also provide the details and strategies to serve these purposes. Hence in this manner the operations manual seems to be a decisive part in the success of franchising business. This step of developing a perfect operations manual is very important in order to ensure quality control and success of franchising business. Most importantly, this manual will serve as a legally binding quality control for all the franchises which will also help in the success of the entire chain of the franchise.
In addition to the above-mentioned step of developing operations manual, a franchisor should also devise different training programs to equip the franchisees and his/her employees with efficient skills to make this franchising business a complete success. Informational sessions and computer-based equipments have been proved to be very effective in order to serve the purpose of successful franchising. Moreover, training videos can also be used as effective tools for training purposes.
3. Legal Documents:
In order to sell franchises to different franchisees, one needs to be legally entitled to do it. In order to be legally entitled to do so certain documents need to be prepared and to be submitted to the relevant governing body. This process can vary from state to state and country to country but general principles are almost the same everywhere. These documents include a franchise agreement document and a Franchise Disclosure Document (FDD). So, in order to sell the franchises, a franchisor need to develop these two documents namely, franchise agreement document and Franchise disclosure document. After this step, these documents should be filed with the appropriate state official authorities. In addition to that, maintenance of this compliance is also necessary which can be achieved by regularly documenting the compliance with state and federal authorities on regular basis. These legal requirements seem easy to be fulfilled but one things needs to be kept in mind that without this step no franchising can take place and the franchisor can never be able to attain legal entitlement to sell franchises without that.
A good relationship between the franchisor and franchisee is significant for the success of both parties. Since franchising set ups a business relationship for years, the groundwork must be carefully erected by having a clear understanding of the franchising process. The franchisee is certified to use and advertise goods or services under the franchisor\\\’s logo, brand name, trademarks and trade names for a specific time period mutually decided by both the parties.
Franchising is governed by federal and state laws that entail franchisors to provide potential franchisees with information that describes both parties relationship.
Here is the legal checklist before entering into franchising process.
a. Franchise Agreement
A franchise agreement is a legal, binding contract between a franchisor and franchisee, enforced in the Pakistan at the State level. A franchise agreement contents can vary in content depending upon the franchise system and business type.
A typical franchise agreement contains the provisions and obligations in following areas:
- Business Operations
- Operating Manuals
- Marketing Policies
- Trademarks, Patents and Copyrights
- Service Fee
- Cancellation or Alteration
A franchise disclosure document is a legal document which is offered to potential buyers of franchises in the pre-sale disclosure process. The Franchise Rule states franchise disclosure compliance obligations as to who must be the one to organize the disclosures, who must furnish them to potential franchisees, how franchisees receive the disclosures, and how long franchisees must have to review the disclosures and any revisions to the standard franchise agreement. It contains background information, any bankruptcy history, initial franchise fee, service fee, training fee, royalties, litigation history, principal obligations, trademarks, logos, patents, copyrights, role of franchisee, role of franchisor and termination. There is no hard and fast rule while developing franchise agreement and disclosure statement, it depends upon the parties involved in the agreement and the nature of business being franchised.
c. Operating Manual
The operating manual is a document contains the business model of the franchise and outlines the day to day activities of the business. It provides details the guiding principles that the franchisee must legally follow in operating the business as outlined by the franchisor. From time to time amendments may be made and the franchisee must be equipped to regulate operations accordingly. The franchisee needs to be aware that the contents of the document are confidential.
d. Terms and Conditions
As there is no specific legislation or regulation for franchising, but this agreement is a critical document and should be carefully reviewed by a lawyer before it is signed, a franchisee and franchisor should remember that
- Initial Term, How long?
- Right to renew?
- Exclusive or non-exclusive?
- Supply of goods and services
- How training would be conducted by the franchisor
- Responsibility of marketing and advertising or promotions
- Assistance provided by franchisor
- Performance measurement of franchisee
e. Intellectual Property Rights
It consists of
- Business model
4. Franchise Marketing Plans and Tools:
As clearly evident from the above heading, the franchising company must have proper and state of the art marketing plans in order to make this franchising business a complete success. The main requirement of this business is the selling of franchises and their purpose cannot be served unless the company has a specific, clear and efficient marketing plan. This step will help in getting hold of the potential buyers of the franchise so the marketing plan must be in a way which conveys the franchisor’s clear aim and message to the targeted buyers of the franchise.
The second step in this regard involves the availability of marketing tools so that the marketing plan could be publicized in order to sell the franchises the targeted franchise prospects. The identification of the prospects for this purpose should be made in the above step as marketing tools can only be developed once the target franchise buyer is identified. It is needless to mention here that the marketing tools will aid in the sale of franchises. So, in other words, this step can significantly affect the sale of the franchise so in order to maximize the sale of the franchise a proper planning needs to be done in devising the marketing tools and after that a proper mechanism needs to be devised to use these marketing tools. Brochures can be used to serve that purpose. So, they need to be developed carefully as the sale of the franchises depends on them to a great extent. These could be mailed directly to the targeted prospects by launching a campaign or can be distributed to the participants of different events and trade shows.
5. Franchise Sales Training:
This represents a very important and decisive step in the success of franchising business. A franchisor must have to be aware of all the steps involved in franchising business along with the complications and nitty-gritty of the processes as it is very crucial to know. More specifically, he needs to know the issues involved in the whole sales process of franchising along with the procedural issues in the legal documentation process. In terms of legal documents, the franchisor needs to keep in mind that he can plan and develop all the tools in less than 90 days but that does not dictate that his franchising business can be launched after that period as the legal documentation can actually take much longer than that. That being said, a franchisor needs to prepare himself for the fact that his franchising business can actually take a time span of almost a year to get a legal status. So, he needs to plan by keeping this fact in mind. He should also anticipate the costs of this program not for three months but for a time span of six months to a year. It is regardless to mention here that the time duration for the legal documentation process can vary from country to country and state to state.