Franchising is a form of business by which the owner (franchisor) of a product, service or method obtains distribution through affiliated dealers (franchisees). Franchising your business is a proven route to rapid growth.

All sorts of business concepts, in all varieties of markets now use the franchise method successfully to expand their business networks. However, not all businesses are franchisable. You must determine first if your business does indeed fulfil the necessary requirements for franchising.

Franchising your business is typically not ideal if your business is a product or service which is only likely to have an attentive market for a short period of time; or if gross margins are too low to offer a return on investment to both you as the franchisor and your franchisees. Additionally, if your business relies heavily on repeat business customers whose loyalty derives from the individual providing the service, or if your business thrives in a geographically defined market that doesn't have the potential to be repeated in other areas, your business may not be suited for franchising.

However, if you believe your business is a franchisable concept then you will need to offer potential franchisees a business format which includes your brand, business model and support services under the contractual guidelines of the franchise agreement, which will outline the financial arrangement.


As a franchisor your goal is to create a brand with a reputation that invites investment. Therefore, your brand should be easily distinguished and suitable for all the places you would like to expand your network into.

It is also your responsibility, as well as your duty to your franchisees paying for the advantage of using your brand, to protect it legally against abuse, both by outsiders and ex-franchisees. For that reason you will need specialized legal advice on protecting your trade and service marks.

One of the principle benefits franchisors offer to prospective franchisees is the opportunity to run a business which has already proven its capacity to deliver products or services profitably to an identified market. It must be a proven business model that, in practice, has shown that the idea works and that you can be successfully copied and transferred to another person.

You will need to draft and establish an all-inclusive operations manual that details what a franchisee does, how they are to go about doing it, and at what performance and quality standards. The manual will need to cover the pre-launch procedures as well as the continuing operation of the business.

Additionally, you will need to develop and prove an initial and continuing training programme that ensures thorough instructions on the business information contained in the operations manual, within the specified timeframe.

The work involved in proving and documenting your business operation and training systems is far-reaching and generally calls for additional legal advice.

Franchising agreements must be all-inclusive. They are not promotional brochures and they are individually tailored to your type of business.

A good agreement will incorporate not only your obligations as a franchisor, but your rights as well. Similarly, it sets out to determine the rights of the franchisee as well as their obligations.

This, however, is not meant to imply that franchise agreements are an equal balance of rights and obligations between equal business partners. Since franchisors are responsible for the whole network of franchises, they sometimes have to work against the interests of an individual franchisee in order to satisfy the needs of the entire network. In this area, you must get fully experienced professional advice.

The Importance of an Exit Strategy

Small Business Secrets

The support service

One of the aspects of a franchise that makes it so appealing is the initial and continuing support services offered by the franchisor to the franchisee.

Franchisors have the sole responsibility for product and service development, for national promotion and advertising, for purchasing financial services, for quality control and national accounts. There is an investment involved in making sure the necessary support services can be delivered to all of your franchisees, from your first to your hundredth. Furthermore, the kind of business it is will determine the extent and variety of support.

You will also need to make sure that your franchised business is structured so your franchisees require your services on a perpetual basis and in turn, will want to continue paying for their membership to the network. When structuring your support system, you may want to seek experienced advice.

The offer documents

If you are selling your brand and your proven business model with the benefit of the support systems and necessary training you offer, within the framework of a franchise agreement with initial and continuing fees, you will need a prospectus, which is a formal summary of your franchising plan intended for prospective franchisees.

Potential franchisees will want to know what kind of business they can expect to do and its profit potential.

Since your own business is already up and running, and hopefully successful, you will have facts on which to base your financial and profit projections. It is important to keep in mind that franchisors have to draw a fine balance between producing realistic expectations, which can be met, and giving franchisees targets which are so low that they don't need to fully utilize their business opportunities.

In a nutshell, you should steer clear from overselling or underselling. Experienced advice can also be helpful with the offer documents, as you should match the presentation of your offer to the norms of the franchise's recruitment market.

The financial arrangements

Just like you, a potential franchisee is in business to make money, and there's no point in selecting a growth strategy, which won't maximize your potential. Although some franchisors may believe that they would be more profitable if they owned all of their outlets themselves, they sometimes forget that they never would have been able to expand their network into a forty or four hundred unit franchise on their own

In franchising, one needs to address two questions from the point of view of the franchisor, and from the point of view of the franchisee - what are the costs to the franchisor and how much should they charge in order to make a worthwhile return? And what price will the market bear or what can the franchisor afford to spend in order to make the business more profitable?

It is common practice to keep initial franchise fees as low as possible to the possibility of success and to ensure a value for money return on the continuing fees.

Franchising - How Does it Work?

A successful business decides that they have the type of product and/or service that is in a fairly niche market and would be of interest to individuals who want to run their own business but do not have the ideas, desire or capabilities to set up their own business, or those who simply believe that a business selling a proven product is a sensible option for their circumstances and/or character.

The benefit to the franchisor is also capital: not having to obtain finance and then use it to fund the growth of your business is a major benefit, alongside gaining quality entrepreneurs to join in the brand building and market share grab.

  • A franchisor advertises the service or product

  • You (the franchisee) request a franchise information pack

  • You complete an application

  • The franchisor accepts your application, or with major franchises, you have a meeting

  • You sign an Agreement for, say, 5 years

  • You pay the initial fee

  • You receive training, resources (supplies, starter pack) and marketing help and/or advice

  • You start to trade

  • You continue to buy supplies from the franchisor (possibly at a minimum figure each week/month)

  • You pay a weekly/monthly/yearly service fee (or maybe not)

Will Any Product Work?

A proven product should be shown to have succeeded in more than one location, and also to have been shown to be capable of success in a fairly short time (the franchise product should not rely on being a family run business for, say, the last 10 years). A well-known brand name is not essential as long as the business is known to be in demand: the franchisor should have market research that shows little risk in the venture given an average area.

The Pros and Cons

  • Pros: Proven brand and product, your own business and own boss, product and management support, purchasing power, marketing power.

  • Cons: You still answer to someone, must use franchise supplies, continuing fees, local competition, lack of marketing, poor and costly service backup, renewing Agreement every 1, 3, 5, 20 years?

The 'pros and cons' are subjective as a franchise is a franchise: you enter into an agreement and you know the rules, and those rules are unlikely to suit you 100%. If you are an 'entrepreneur' you may never be able to settle into a role where you have an ultimate boss: likewise, if you are a competent manager you may relish in the opportunity of 'running' your own business with the support of a large organization!

The essence of successful franchising lies in the relationship between franchisee and franchisor. Franchising is often falsely perceived by potential franchisors as a way to reduce responsibility for the ultimate success of the franchisee.

To run a successful franchise program, you must invest a tremendous amount of time, energy, and money in recruiting and selecting topnotch franchisees, writing a comprehensive operations manual, and creating compelling marketing plans. But the success may be short-lived unless you provide ongoing support to franchisees to maximize their prosperity.

In designing a support program, look no further than the original reasons why you both chose to grow via franchising. Both of you were attracted by the "safety net" a franchise arrangement represents. You get to expand your system while limiting your personal capital risk. Your franchisees get to be their own bosses within the confines of a proven formula.

Franchises come in two basic flavors: owner operator and absentee owner/investor. An owner operators directly manages the daily operations of the franchise unit. The absentee owner manages through others. Both types have a vested interest in successfully marketing the products and services of the franchise system.

Either variety of franchises requires four basic types of support:

  • marketing,

  • performance review,

  • operations, and

  • construction.

Rapport and more. The essence of successful franchising lies in the relationship between franchisee and franchisor. Franchising is often falsely perceived by potential franchisors as a way to reduce responsibility for the ultimate success of the franchisee. Any successful franchisor will tell you that you cannot distance yourself from the operations of the franchise units.

Remember, the profitability of your franchise system depends on the health and prosperity of your individual franchisees: Regardless of whether your franchisees are owner operators or investors, you are responsible for controlling the performance of individual units through the franchisee and its managers. To do that, you will need their cooperation.

You will provide the services needed to maintain the integrity of the franchise system, whether or not the contract specifically calls for that. Services cannot be applied inconsistently; they must be an integral part of the program. After all, you cannot adjust the royalty fee on a "give less, get less" basis.

The relationship between you and your owner operator franchisee is continually evolving. At first, the franchisee is entirely dependent on the franchisor's guidance to implement the standardized marketing program. This is similar to opening a branch office, with the new franchisee acting as the newly hired manager. At this stage, the franchisor provides marketing tools which have been tested and developed in the system owned outlets.

As the franchisee becomes more confident and gains a better understanding of the market, the support platform changes to accommodate the growing need for independence. The franchisee will develop its own style and want to respond to its location's specific marketing opportunities.

Franchising - The Relationship

As the relationship between you and an owner operator franchisee progresses, you will need to be responsive to both the personal needs of the franchise holder and the business needs of the unit. The two are frequently compatible.

The type of relationship between you and an absentee owner/investor depends on the number of units owned by the franchisee. A single unit absentee owner employs a manger to operate that unit, so you must coach both the owner and the manager.

A multiple unit absentee owner, or "area licensee" will require a different level of support. (Area licenses generally contain development obligations to open a prescribed number of units within a defined geographical area over a given period of time.) Area licensees stand alongside the franchisor in interpreting marketing opportunities.

They will expect to receive guidance in developing a marketing plan which maximizes the potential of the designated areas. Although this plan should rely on and incorporate the licensee's input, it should substantially reflect the system wide marketing strategy.

Grading Scheme. In addition to offering marketing guidance, you as the franchisor are obligated to monitor the performance of the franchisee's locations and recommend methods to improve performance. Your review of performance is essential to providing a method of comparing the effectiveness of different units within the system.

To assure that the information you collect is usable, it is imperative that you formally review the operations of each franchise using the standardized form. This will enable you to compare individual units to the whole and begin to develop a profile of the ingredients necessary to create a successful franchise.

Franchising - Performance Review

You should informally review performance of franchise units with personal visits, structuring your trips so that you have time to listen and observe, and then provide feedback to the owner and/or manager regarding how the unit compares to other similar ones in the system. This is your way of practicing preventive health care within the system. When delivered in a positive and supportive manner, this process will be viewed as a benefit of joining your franchise system.

The essence of successful franchising lies in the relationship between franchisee and franchisor. The key to successful franchisor-franchisee relations is the franchisor providing solutions to problems the franchisee may encounter before they happen.

The key to successful franchisor-franchisee relations is the franchisor providing solutions to problems the franchisee may encounter before they happen. You want to assure franchisees that you have "been there," which is the reason why they purchased a franchise instead of starting a business from scratch.

Owner-operator franchisees usually are very dependent on the franchisor to assist them in making construction, operations, marketing and performance review decisions. As they become more confident, they start to assert their own personality and ideas. An absentee owner-investor expects the franchisor to coach the franchise management through the dependent stage into independence.

This transitional period is the best time to establish trust between franchisor and franchisee. All to often, the two parties never develop the proper relationship. Rather, elements of mistrust, based on real or imagined incidents, tend to defeat positive communication and hinder the support necessary to move the process forward.

When this happens, the franchisor bears the greatest accountability. At the onset of the relationship, the franchisee trusted the franchisor and elected to join the program and pay a fee to become part of the system. The franchisor, after weighing the decision carefully, then selected the franchisee.

Site selection and construction are areas in which the franchisor can set the tone of the relationship and maintain outward continuity between franchises. The franchisor is required to provide a general, typical set of plans to the franchisee so that the franchisee can accurately determine the real estate requirements for its location.

Franchise Programs

In most franchise programs, changes to the plans must be approved by the franchisor before construction begins. This review and consent process should be done with the understanding that against the back drop of system universally comes the need for individual expression by each franchisee.

These two seemingly opposed viewpoints are workable if the franchisor has emphasized trademark investment as the common focal point of the franchise. However, in order to accommodate creative needs, the franchisee might be encouraged to experiment with new products, marketing tools or decor over the term of the franchise.

Another form of franchisor is the operations manual lent to the franchisee throughout the franchise term. It is important to ensure that these manuals are well written and properly documented. If the operations manual is incorrect, liability reverts directly to the franchisor for acts arising out of its usage.

For example, McDonald's remains a respected franchise program, but without its operation manual, there would be a little flexibility to make the adjustments that are essential to the growth of the system, such as menu or decor changes.

The operation staff of the franchisor should be prepared to provide system-wide assistance in the areas of training, field operations and maintenance of high-quality company store activities. Since the franchise world is based on the track record of the franchisor and its other franchisees, field operations merit special attention.

The franchisor should place high priority on both scheduled and unscheduled visits to review operations. In the start-up phase of each franchise, the visit should focus on daily operations to avert major problems later.

Each visit should have a constructive agenda with the ultimate objective of achieving the goals of the franchise program through cooperation between franchisor and franchisee. It is imperative that these visits be perceived as a positive attribute of the franchise system.

Over time, limiting visits to operating matters alone will become ineffective. With problems remaining to be solved and new ideas to investigate, it is the responsibility of the franchisor to determine the most practical avenues of assistance. This might include marketing, finance, employee benefits, insurance or business planning. These issues become especially important as a franchise system expands and the franchisees grow along with it.

With area franchising, the need for unit performance monitoring is as important as with owner-operator franchises. However, rather than dealing solely with the operations of the units, assistance should be provided for the growth strategies of the area licensees. The emergence of needs that go beyond the walls of the franchised unit begin to develop soon after the area licensee's first unit opens.

Franchisees demand substantial attention from their franchisor. By acting with foresight, the franchisor can solve problems and benefit the entire franchise system.

Not only are selling and opening the first franchises the hardest steps, they are the most critical to the future success of your company. Your goal is to create a franchise program in which every prospect wants to participate. If you accomplish that, you will have the power to choose franchisees from the best applicants. That simple idea—the option of choosing the best from the highest level of applicants—will have a greater impact on your program than any other single element.

A key component of building a franchise sales program is role-playing of your presentation with other franchisers. It gives you valuable experience from someone who has "been there" prior to the start of sales.

Of course, there are other things you can do to smooth the process of selling and opening the first franchise. A sales and implementation plan will be the road map for taking a prospect from the initial inquiry to the first day of operation. This plan should be a "working" document. Start with an outline of what you think the process should be, then update it as you learn what works and what doesn't.

The first part of the sales and implementation plan involves refining the sales process. Each reply to a prospect's question should move the selection process forward for both you and the prospect. Think about what questions you would ask if you were the customer. Write out and evaluate your responses to those general questions. If you were a prospect, would you be satisfied with these responses? Would they motivate you to want to become a franchisee? Would they make you aware of the risks involved? Adjust your responses accordingly for each potential buyer.

As you polish your sales presentation, keep in mind the legal rules governing franchise sales. They were created because franchisers have the advantage of developing finely crafted responses to critical questions.

Franchising Materials

Your printed materials offering the franchise opportunity are designed to disclose the program fully. They define the limits of what can be said to induce the purchase of a franchise. The more familiar you are with the contents of your literature and the better able you are to communicate the program's direction, the more credible you will be to prospects. The more credible you are, the more likely you will be able to sell to the best of your prospects.

After you have outlined the selling process, take time to explain the implementation portion of your plan. An easy-to-follow implementation plan will impress the best prospects in your applicant pool. It will also help you to maintain a franchisee's confidence during the difficult period between buying and opening of franchise. In the long run, it will make it easier for you to attract and retain quality franchisees.

Your first implementation plan is based on the principal that every franchise unit, be it the first or the one-hundredth, requires site selection, lease review, design and layout, permit acquisition and attention to other construction details. Use your own experiences to put together a set of questions and answers which address each of these areas.

For site selection, formulate a rating system for specific site criteria that will enable franchisees to select quality sites with a high probability of success. For lease negotiation, list the salient points included in a lease and the parameters that will make it financially and operationally successful. Build in "must haves" and "tips" for negotiation.

To help franchise buyers with design, layout, permitting, and construction issues, collect relevant blueprints, diagrams, color combinations, material samples, lists of permit agencies, and other data important to a successful construction project. Put this information into a guide book that a franchisee can use to make decisions.

Select your first franchisees carefully, then elevate them to the status of "most important customer" as you painstakingly guide them through each problem and opportunity which arises.

Franchising - Head Start

Franchising is a way of setting up in business with a head start. This way you run the business, but you enjoy the support of an established business and benefit from tried and tested operating models.

You pay the franchisor – the business your working with – for a package that gives you an exclusive 'territory', using its brand name, technology or products and business model for an agreed period – five years for example – on a renewable contract.

Once accepted as franchisee you get technical and/or business training, operating manuals, often marketing help and sometimes accounting or other admin services. In return, you agree to run the business according to the franchisor's standards.

You must be clear about what franchising means in practical terms before you start looking for one. It's worth investigating all the ins and outs, so avoid wasting time and money later on.

Once you’re comfortable with the concept of franchising, it’s a good idea to learn more about the industry and how it’s doing.

Put simply, franchising is growing fast. It's proven to be the safest way of starting your own business and nine in 10 franchisees – the people who run franchised businesses – say they are making a profit.

It’s an industry that is growing in popularity, although not as fast as many franchisors would like. Many believe a lack of suitable franchisees is thwarting growth - so they are looking for you. Two-thirds of those who go into franchising were in salaried employment immediately before taking the plunge.

Training is given by 100% of franchisors, and 73% provide it in-house. Encouragingly, the relationship between franchisors and franchisees is very good, with the majority saying that their relationship is healthy.

Franchising - Feasibility

Use this form to help you determine the feasibility of your business as a franchisable concept. Answer each question, assigning a rating of 1-5 for each question, with 5 being the strongest. Total each column after you’ve finished, then add all five columns together for a grand total.

You need to score at least 50 and the higher the score, the more potential the concept has of becoming a successful franchise.













Does your business have an established track record of more than five years?






Do you and/or any of your partners have experience in the business greater than the period of time your business has been in operation?






Does your business have 10 or more locations?






During the time your business has been in operation, has it maintained average net profits in each location of more than $100,000?






Does the business generate repeat customers on a frequency greater than two times per month?






Does the business attract customers from a 5 mile radius or greater?






Do you have more than $250,000 to invest in the development of your franchise concept?






Do you and/or any of your partners have business management experience greater than 10 years?






Will the start-up requirements for franchisees be less than $25,000?






Are training requirements less than three months?






Does your business have international adaptability?






Rate the competitiveness of your industry.






Have you received more than 10 franchising inquiries in the last year?


















A strong Business Plan may not guarantee success; but it could certainly prevent failure!

Page sponsored by The Button Store

Your Business Planning Advice!

About Us
Business Plans Index
Before You Start
Starting A Business
The Right Business Name
The Basics Of Business Planning
Writing A Business Plan
Start-up Business Plan
Quick Business Plan
Business Plan Outline
Business Plan Sections
Business Plan Template
Executive Summary
The Mission Statement
Company Summary
Products and Services
Marketing Plan
Marketing Strategy
Marketing Summary
Market Research
Competitive Analysis
Competitive Strategy
Management Summary
Managing Your People
Operational Plan
Start-up Expenses
Sales Forecast
Profit And Loss
Balance Sheet
Cash Flow
Business Loan
SBA Loans
Franchising Your Business
Exit Strategy


This site was last updated on - ©