For those about to enter the world of franchising, the leap may seem daunting. After all, you are about to enter into an entirely new business--the business of selling and servicing franchises. And, just like the franchisees you are hoping to sell to, you will be going in blind--not knowing what you do not know.
But not to worry. Just as your future franchisees can turn to you for advice on how to run their new businesses, there is a cadre of experts who can help you with the various aspects of becoming a franchisor.
The First Steps Toward Franchising
The first advisor you may want to consider hiring is the franchise consultant. Franchise consultants (such as this author) can play a vital role both in your decision to franchise and in your ultimate franchise plan.
The first and most important role of the franchise consultant should be to provide you with objective advice about the franchisability of your business, an assessment of whether franchising is the best option for you in particular and an understanding of the process (and all the costs) involved in franchising--so you can make an informed decision on whether franchising, in fact, makes sense for you. As with virtually all your advisors, you will not be charged for your first meeting and this initial analysis.
Should you decide to franchise, good franchise consultants will be able to help you with a wide array of your initial franchise needs, ranging from the development of your strategic plan, quality control tools and marketing strategies and materials.
Strategic planning is perhaps the most important role of the consultant. Many of the key decisions you make in the early going--territory, support, royalties and fees--will have a profound impact on the long-term health of your franchise organization. To get you the best answers to these questions, franchise consultants will complete competitive analysis, examine industry best practices, develop structural and staffing recommendations and subject all your decisions to sophisticated financial analysis. Bear in mind that a 1 percent error in your royalty structure can easily translate to millions of dollars of lost profits, so these are not decisions you should take lightly.
Another key to successful franchising involves quality control. A well-rounded consultant will be able to help you develop the tools necessary to maintain the brand: operations manuals, site selection manuals, field consultant manuals, training programs and even training videos should be a part of your quality control arsenal, and the more aggressively you are growing, the more of these tools you will likely need.
Of course, you cannot be a franchisor without selling franchises. That means your consultant should be able to advise you as to the best methods for generating franchise sales leads. Some consultants will also be able to offer their expertise in implementing your franchise marketing--developing marketing plans, brochures, internet sites and videos on your behalf. Again, the difference of just one incremental franchise sale will likely mean hundreds of thousands of dollars over the years, so if your consultant can help you sell more aggressively (or keep you out of trouble in the process), it is money well spent.
In evaluating potential franchise consultants, you should look for two things: integrity and expertise. Be very cautious of any consultant who says you should franchise before thoroughly evaluating your business, your goals and your resources. Franchising is not right for everybody, and those who would tell you that it is may be more concerned with their own welfare than yours. In evaluating any potential advisor, be sure you understand the qualifications of every individual who will be working on your account. If you are a startup franchisor, you are well advised to work with people who have built businesses from the ground up. Many franchise consultants may have spent their entire careers working in large franchise organizations, which might be a great match for larger franchisors, but a poor match for the new franchisor. And don’t rely on client lists alone--if you are working with a rookie employed by an experienced firm, you are still working with a rookie. Be sure you examine each individual consultant’s bio.
You should also look for breadth of expertise. The franchise consultant will be providing you with advice on a wide array of issues. The more brains the firm has to put on your engagement, with the more areas of expertise, the more value you will get. While sole practitioners may have a good deal of experience, if you go that direction, be careful to work with someone who is committed to consulting as a career, not someone filling time between jobs.
Why You Need a Franchise Attorney
An equally important decision for the new franchisor is the choice of a franchise attorney. As a new franchisor, you need an attorney to draft your franchise agreement and offering circular, apply for trademarks (if you have not taken this vital step already) and prepare your state registrations.
In making your choice of a franchise lawyer, it is again vital to find someone with the right experience. When it comes to franchise law, having franchise experience is not the same as specializing in franchise law. Many lawyers who claim to have franchise experience may simply have worked for franchisees in evaluating franchise agreements. Franchise law is a highly specialized field that is constantly evolving based on changes in case law, state laws and even a newly revised FTC rule. You need an expert who works with franchisors for a career--not as a sideline.
While your franchise consultant can recommend good franchise lawyers, beware of consultants who want to do the legal work on your behalf. First of all, these “consultants”--who really are franchise “packagers”--will require you to hire a second attorney to review their work, in an attempt to avoid charges of the unauthorized practice of law. Aside from the fact that you now have to pay for your legal documents twice, there are significant problems with this approach.
The issue here is one of conflict of interest. When you hire an attorney, the attorney is obligated to represent you. When you use a packager’s attorney, the attorney represents the consulting firm. If the packager tells the attorney to push through as many documents as fast as possible in an effort to increase the packager’s profit margin, then that is the attorney’s responsibility. If the packager will also sell franchises on your behalf, another conflict arises. The easiest way to sell franchises (and the easiest way to push these documents through some state regulators) may be to draft a watered-down agreement that may not be in the franchisor’s best interest. An attorney who represents you directly will have no such conflicts.
Equally important, often the best and most experienced lawyers will gravitate toward working in an independent practice or for a law firm, as this will allow them to build equity in their practice. Consultants who provide legal work may attract entry level attorneys new to franchising--so if you are thinking of going this route, be sure to ask the attorney who will be drafting your contract the tough questions about how long they personally have been practicing franchise law. Franchise law is simply too complex to trust the development of your franchise legal documents to an inexperienced attorney.
The Butcher, the Baker and the Candlestick Maker: Other Professionals Who Can Play a Role
As you get ready to implement your franchise program, there are a number of other professionals who can help. Depending on how aggressively you choose to franchise, the management recruiter specializing in franchising may be one of your first calls. For companies looking to grow aggressively, one of the best ways to do so is to bring on management talent with franchise specific expertise.
As a new franchisor, it is unlikely that you can identify, let alone enlist, this level of talent without the assistance of a recruiter. These recruiters (who seem to know everyone in franchising, especially those who are looking for a change) can often find the perfect person and help convince them to join your young franchise team. At the same time, they can be an invaluable resource to you in helping you gauge proposed compensation packages and personnel needs.
Another invaluable resource is a PR firm specializing in franchising. Few things will propel your company to the top as fast as favorable publicity. But what few business owners realize is that publicity does not happen by accident. In fact, some experts estimate that only 40 percent of what you read in print on any given day is “hard news.” The rest, for the most part, was placed by publicity specialists. And a PR firm specializing in franchising can be an invaluable resource--as they have the connections with the franchise press that can often expedite notoriety.
Others who will be part of your early network of advisors will focus on sales and lead generation. There are currently over 70 websites that act as franchise advertising and lead generation portals. There are networks of franchise brokers who will also assist with franchise lead generation. And the latest trend is hiring franchise sales outsourcing organizations that can provide you with a professional alternative to the traditional in-house franchise sales organization.
As a new franchisor, you will be meeting many and perhaps all of these experts--but be cautious. To some extent, you will be putting the future of your business in the hands of these professionals. Just as you would advise your prospective franchisees, be sure you choose wisely. Experts are not created equal, but with the help of well-chosen professionals, you do not have to go it alone.
To get a start on finding expert help, check out the American Bar Association and the IFA supplier directory.