What is a franchise?
A franchise is a company that has expanded its business through licensing.
Imagine a fictional company called Rob’s Burgers. Rob has built this company and made it profitable. Now, he’d like to expand, but he doesn’t want to run new locations himself. To do this, Rob becomes a franchisor.
As a franchisor, Rob finds a franchisee – let’s call her Linda – who would also like to sell burgers. Instead of Linda starting her own business from scratch, Rob sells her a license to open Rob’s Burgers’ second location.
Rob then teaches Linda everything he knows about how to make and sell burgers and allows her to sell official Rob’s Burgers brand products. In exchange, Linda pays regular royalties and other agreed upon fees to Rob. This continues as long as Linda holds a license to sell Rob’s Burgers brand products.
Rob’s Burgers is the franchise.
Rob is the franchisor.
Linda is the franchisee.
Why do you need to franchise?
Rob likely doesn’t have the time to oversee two locations. Linda likely doesn’t have the knowledge and experience to successfully run a burger joint. Through franchising, both of these problems are solved: Linda manages Rob’s Burgers’ second location, and Rob provides industry know-how and experience to maximize her chances of success. Linda’s success is Rob’s success, and vice versa.
These are just two of the reasons a company may need to franchise. There are many others:
From the franchisor’s perspective, franchising provides:
- Rapid expansion
- Increased brand awareness
- Increased buying power and opportunities to buy in bulk
- Additional testing and experimentation in developing new products
- Practice for efficiently replicating the business model for further expansion
From the franchisee’s perspective, franchising provides:
- The opportunity to use / sell a trademarked product
- Experience-based knowledge on how to sell the trademarked product
- Support from successful franchise owners
- A greater chance of success
- Group advertising not usually available for small business owners
When do you need to create a franchise?
There isn’t one specific time that is best to franchise your business, but there are questions that can be answered to help you understand when your business is ready to be franchised.
- Is it working? Is your business generating enough income to support expansion into more locations?
- It is repeatable? Is your business model able to be copied and implemented into other areas? (Often, another benefit provided by franchisees is local knowledge of their communities and customers).
- Is it lucrative? Are the terms attractive to potential franchisees?
These questions aren’t necessarily easy to answer, but that’s why franchise experts, such as Escalante Yormack Law, are here to help.
How do you create a franchise?
If you believe you’re ready to franchise, the next step appears clear: just do it. But, as you dig deeper into the process of franchising, it becomes apparent that is isn’t the most straight forward process.
Of course, you can read online articles and guides (like this one from Forbes) to help you figure everything out. As you’ll notice, though, Forbes says: “Getting expert advice is really crucial during the franchising process…it’s important to have a lawyer walk you through this process.”
Aside from the complicated process of franchising, there are also concerns of ensuring your brand is protected and that its values and standards are upheld by every franchisee.
Franchising is an important process and can help your company succeed. As well, it can be an easily replicable process, allowing rapid and widespread expansion. For these reasons, it’s crucial your franchising is handled correctly from the start. That’s why expert advice and time-tested knowledge are required.
Ready to franchise your business? Not sure if now’s the right time, or just don’t know how to get started? Get in touch with us today.
Escalante Yormack Law
Adam Yormack, Esq., is the principle attorney at Escalante Yormack where he focuses on corporate and commercial litigation, franchise, and real estate law. You can reach Adam directly at firstname.lastname@example.org.
The materials in this article are provided for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any potential questions or concerns, etc.
Escalante Yormack Law, 5201 Blue Lagoon Dr., 200, Miami, FL 33126 | 305.514.0046