‘Tis The Season To Launch That Franchise System?

Fox Rothschild LLP

Fox Rothschild LLPThe new year is often a time when successful entrepreneurs with thriving business concepts start looking to expand their brand using a franchise business model.  Franchising is an excellent way to grow a business rapidly, penetrate new markets, and leverage investment from the capital infusion and energy of franchisees.    However, there are a few very important steps we always recommend to clients committed to pursuing franchising before deciding to take the plunge.  With 2020 on the horizon, let us provide you with a list of tips to get you ready to launch!

  •  Develop a Profitable Business.  While this step may seem obvious, many businesses decide to franchise before having at least one business unit with at a few years of strong operating and financial performance that can provide prospective franchisees with proof of concept.  You also have to consider whether your business concept is likely to be profitable for franchisees after taking into account ongoing royalties, advertising, technology, and other fees.
  • Research Competitors in the Industry.   Do competitive analysis of not just franchise systems that directly compete in a certain industry sector but concepts with similar financial models.  For example, if you are a remediation service franchise, then a prospective franchisee may be comparing a cross range of service-based mobile models with similar price-points (lawn care, handy work, painting, or dryer vent cleaning, for example).
  • Organize the How-To.     Any sustainable franchise system will need to provide its franchisees with an Operations Manual that includes the processes, procedures, and methods of the franchise system concept.    The Operations Manual is the go-to resource for franchisees and key topics include: business overview, initial training, marketing and advertising, approved suppliers, required equipment, site selection (if applicable), inventory, and customer service.
  • DRILL DOWN on the Costs.   Remember that launching a franchise system is a new business in and of itself.    You will may need capital or financing to ensure you have the infrastructure in place to support your franchisees and the necessary business advisers retained to assist in the process (accountants, attorneys, potential franchise consultants, and new personnel, like trainers).
  • Confirm Your Trademark.  You should confirm that your business owns a federally registered trademark, and, if necessary, take steps to federally register all trademarks associated with the brand.  Franchise counsel should include this as part of a comprehensive package to get new systems prepared to franchise.

The beginning of a calendar year is often an excellent time to launch a new franchise system from a regulatory and accounting perspective.   If your fiscal year is 12/31, then  launching in the beginning of a calendar year provides you an entire year of use before annual updating is required.  This saves time and money, two things many start-ups don’t have in excess.   If you are ready to move forward, then discussions with an attorney with experience in franchising is an appropriate next step.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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