Franchising is a great way to expand a business without taking on huge amounts of debt or managing multiple locations.

You need to already have a successful business before you start focusing on how to franchise a business, but even startups can plan to eventually go that way if it’s in their long-term goals.

We talked with Dr. Tom DuFore, the founder of Big Sky Franchise Team, to learn about what it takes to start franchising. He shares his experiences as a franchisor, franchisee, and franchising consultant to help you understand how to start franchising.

He explained what franchising is, the pros and cons of becoming a franchise, and how to franchise your business. We’ll also answer some frequently asked questions about franchising.

Keep reading or click on any of the links below to jump ahead:

What is a franchise business?

A franchise business allows a franchisee to use the franchise business name and systems in exchange for a franchise fee paid to the franchisor.

In other words, the franchisor allows the franchisee to use their name, trademark, and business model to sell products or services in exchange for an initial franchise fee and ongoing royalties.

A franchisor will normally offer support, marketing tools, and technology. Many franchisors also provide advice on choosing a location, hiring employees, and other business management strategies to help franchisees succeed. Tom explained:

How much does it cost to franchise your business?

The cost of preparing your small business to start selling franchises will range from $41K to $160K for initial expenses and the first year operating as a parent company. These costs will cover the following:

• Franchise disclosure document (FDD)
• Operations manual
• Prepared financial statements
• Registration and filing fees
• Franchise branding
• Franchise website
• Pitch decks
• Public relations materials
• Advertising
• Broker organizations
• Conferences

Tom told us:

Pros and Cons of Franchising

You should strongly consider whether the franchise model is right for you before you seek franchise help. Let’s look at the pros and cons of starting a franchise business.

What are the benefits of becoming a franchisor?

There are a number of advantages and disadvantages to turning your small business into a parent company and selling franchise opportunities. Tom explained:

The reasons you want to start franchising include:

• It saves money because the franchisee pays to start the new location.
• Management is simpler because the franchisee manages the location.
• You can multiply your growth faster.

Tom summed it up as:

What are the disadvantages of franchising?

Tom explained that you have to love your system and enjoy coaching franchisees before you start creating a franchise. If you’re stuck in an owner-operator mindset or you don’t care about serving other communities, it might not be right for you. Tom emphasized:

Want help franchising your business?

It’s a lot of work starting franchising operations. It’s helpful to work with an experienced franchise development company.

The Big Sky Franchise Team has over 100 years of experience and has been recognized as Best Franchise Consultancy and Top Franchise Supplier for seven years running. Tom told us:

Check out our interview with him below to learn more about how to own a franchise business:

They’ll help you with the full franchise development process listed in the rest of the blog.

How to Franchise a Business

Turning a successful business into a franchise opportunity is a logical step for a successful business owner to take. Franchising your business will follow a similar process to creating your own business:

1. Determine if franchising is right for you.
2. Create your franchise business plan.
3. Establish your franchise company.
4. Create a franchise disclosure document and franchise agreement.
5. Register trademarks.
6. Prepare your operations manual.
7. Register and file your franchise disclosure document.
8. Create franchise marketing assets.
9. Review your franchise technology.
10. Start marketing to prospective franchisees.
11. Implement a franchise sales process.
12. Onboard and train your franchisees.
13. Support your franchisees.
14. Improve your franchising.

Keep reading to learn more about franchising your business.

Step #1. Determine If Franchising Is Right for You

Franchising a business isn’t an easy task. There’s a lot that goes into it. Make sure to think about how to become a franchisor before you decide to go full steam ahead. You’ll also need to answer the following questions prior to starting a franchise company.

Does it make sense to franchise the business model?

When you think about how to get into franchising, Tom told us you have to think about whether a franchise can be formed from its current business model.

Businesses that serve local customers make the most sense to franchise, but the business needs to be relevant on a regional, national, or international level. For instance, franchise companies might not make sense for online businesses.

Is your business profitable?

Before franchising a small business, you want to have profit margins and revenue that are high enough to cover the royalties and manager salary while still providing a return on investment.

Review the financial statements from the most profitable market players to see if your small business outperforms them on a profit and revenue per employee. If it doesn’t, you probably aren’t ready for franchise small business operations.

Do you have an operations manual?

Franchising your business requires a successful business model. Your franchise operations manual should make it easy for anyone to review a process and successfully complete the task.

Are you ready to provide ongoing support to new franchises?

When you provide small business owners with your business model, they’ll be covering many of the startup costs and legal requirements. However, they’ll also be relying on your business experience to help them reach future profitability. If you prefer to be in the field helping customers instead of supporting franchisees and building a brand name, then you might not want to franchise your business concept.

Once you’ve established that franchising business is right for you, the next step is to start doing market research and creating a business plan.

Step #2. Create Your Franchise Business Plan

When thinking about how to create a franchise business plan, you’ll need to take a different approach compared to a standard business plan. Tom explained:

You’ll need to create a plan that includes:

• Franchisee details: This should include how much franchisees will normally make, what benefits they’ll get, and any franchise fees.
• Territory definitions: Typically, these are based on miles or a certain number of people in an area.
• Training: Explain how you will train franchisees on your systems and processes.
• Employees needed: Define the roles you need to start franchising. These are more like corporate divisions. You’ll probably want HR, IT, and marketing personnel in addition to a CPA and an attorney.
• Buyer profile: You’ll want to define the values, net worth, and other characteristics of an ideal franchisee.
• Strategic marketing plan: Define how you will attract franchisees and onboard them.

Step #3. Establish Your Franchise Company

This step focuses on creating a parent company as a franchisor. In most cases, the business entity should be a corporation because that provides the most liability protection and allows the franchise business to sell equity.

This company should be separate from your existing business, but you may want to move divisions like marketing, accounting, and other support functions into the corporate office. The parent company will own all the intellectual property associated with the franchising system. You’ll be providing the terms under which franchisees can use your intellectual property in your franchise documents.

The existing business will be corporate run, but you may want to make it pay the same fees as the rest of the franchise system. This allows you to provide adequate financial representations before you get your first franchise location.

Step #4. Create a Franchise Disclosure Document and Franchise Agreement

Next, you’ll want to hire a franchise attorney to help you construct a franchise disclosure document and franchise agreement. The FDD includes 23 parts and must comply with the Federal Trade Commission franchise rule. The parts are as follows:

• The franchisor and any parents, predecessors, and affiliates
• Business experience
• Litigation
• Bankruptcy
• Initial fees
• Other fees
• Estimated initial investment
• Restrictions on sources of products and services
• Franchisee’s obligations
• Financing
• Franchisor’s assistance, advertising, computer systems, and training:
• Territory
• Trademarks
• Patents, copyrights, and proprietary information
• Obligation to participate in the actual operation of the franchise business:
• Restrictions on what the franchisee may sell
• Renewal, termination, transfer, and dispute resolution
• Public figures
• Financial performance representations
• Outlets and franchisee information
• Financial statements
• Contracts
• Receipts

Franchise agreements are legally binding contracts between a franchisor and a franchisee. They will also need to be created by a licensed attorney.

As the franchise owner, you’ll need to work with a lawyer to create a default contract. In the future, they’ll just add details about the franchisee and other information that’s specific to each individual franchise contract.

For more information about creating a franchise license agreement, review this blog by the International Franchise Association.

Step #5. Register Trademarks

You’ll want to register all your trademarks including your business name, logo, and product names before you start selling franchises. This step helps you protect your intellectual property within the franchise relationship and from external competitors.

The primary location to register intellectual property in the United States is the U.S. Patent and Trademark Office. You can also protect artistic work through the U.S. Copyright Office.

It’s best to work with an intellectual property attorney to make sure you protect your IP in all relevant jurisdictions.

Step #6. Prepare Your Operations Manual

Your operations manual should cover all tasks that franchisees will be responsible for managing. That means you’ll need to have detailed processes for:

• Creating products or providing services
• Marketing the business
• Hiring employees
• Working with suppliers
• Handling cash
• Opening and closing the store
• Filing paperwork
• Interacting with customers
• Handling complaints

For best results, you’ll want to have the operations manual in both written and video formats. Include interactive activities and training so that people can practice when they start a franchise or hire new employees.

Step #7. Register and File Your Franchise Disclosure Document

Once all your franchise documents are prepared and you have audited financial statements, it’s time to submit the paperwork to the states that have franchise filing requirements. They’ll need to approve everything before you can sell franchises.

Step #8. Create a Franchise Marketing Strategy

Next, create and document your franchise marketing and lead generation strategy. You’ll need to have marketing in place to sell franchises. This step includes both your national and local marketing strategies.

You’ll also want to define what marketing the corporate office will do and what marketing franchisees are responsible for on their own. Make sure to define how franchisees are charged for their share of the marketing funds.

Step #9. Create Franchise Marketing Assets

You’ll need to create marketing assets for your franchising business, including a franchising website, brochures, business cards, marketing funnels, and other useful documentation.

Given that many of these are heavily tied to franchise technology, we’ll discuss the website and marketing funnels in the next step. For now, let’s look at physical marketing and documentation.

Brochures

You’ll want to have templates for physical marketing materials such as brochures, pamphlets, door hangers, and flyers. These are helpful for marketing your franchising business at trade shows and to customers of service businesses.

Business Cards

Make business card templates for your employees and franchisees. They’ll pass them out to potential franchisees, customers, and partners.

Documentation

Any marketing processes that the franchisees perform on their own will need to be documented in writing with visual aids to help them follow the process.

Step #10. Review Your Franchise Technology

You’ll want to digitally prepare your parent company to start franchise sales. Successful franchises will normally have the following components in place.

Franchising Website

Your franchise website is the key place a prospective franchisee will go when they want to start a new franchise location. It should answer common questions and concerns like:

• How much is the franchise fee?
• What are the benefits of starting a franchise?
• How to start a franchise
• Why should a franchisee buy your franchise over another?
• How much does it cost to start a franchise?
• What are the royalty fees?
• Can the franchise be a home-based business?

Author’s Note: The more disclosive you are, the more potential business owners will connect with your brand. Give prospective franchisees the information they want without harassing them or selling their data. You want to build an organic business relationship. When you try to force franchise sales, you’re likely to alienate people who want to buy a franchise.

Customer Relationship Management Software

You’ll want customer relationship software to manage franchise sales, vendors, and customers. This helps both the franchisor and the franchisee. The franchisor controls most of the data but provides each franchisee access to the data that’s relevant to them.

Marketing Software and Tools

The franchisor will normally have marketing software and training that they set up for the corporation as well as each franchisee. These resources help the franchisee start their marketing campaigns using best practices.

You’ll want to use sites such as Google Business Profile, Google Ads, and Search Console. You’ll also want to set up similar software for Bing.

For social media, create instructions and templates to set up campaigns and targeting demographics. In addition, you should have ad templates for both search engines and social media.

ActiveCampaign is a popular software option for franchising marketing automation. It helps franchises send emails and text messages while customizing the messaging based on the franchise nearest to the customer.

Step #11. Start Marketing to Prospective Franchisees

Start marketing your franchise to people who are looking to start a business. There are a lot of ways to market your franchising business:

• Franchise brokers
• Search engine optimization
• Ads
• Social media
• Franchise directories
• Guest appearances
• Public relations campaigns

Franchise Brokers

When you start a franchise, it helps to build relationships with a franchise broker. They can help you spread the word that you sell franchises. When a franchisee signs on, they’ll get a commission from your franchise fee.

According to the Franchise Brokers Association the average franchise fee is $44K, while the average commission is $12K. This means the average commission is about 27.3%.

Search Engine Optimization

Search engine optimization is the art of creating content to answer web searches better than other websites. There are hundreds of questions and ideas that people ask about franchising including:

• What is franchising?
• How do franchises work?
• What are the best franchises?
• How to become a franchisee
• How to buy a franchise business
• What are the requirements to start a [name] franchise?

Make sure you adequately answer each question with text, video, or both.

Ads

You can use ads to let people know about your franchise business. One of the common strategies that franchisors use is to pay for ads on competitor franchise searches. For instance, if you run a cleaning business franchise, you might pay for ads on Merry Maids or other franchisors’ keywords.

Social Media

Social media is another great way to increase brand awareness and reach people who are thinking about owning a franchise. You might target people who follow the International Franchise Association or industry groups.

Franchise Directories

You’ll want to list your franchise on every franchise directory possible when starting a franchise business. Some of the popular ones include:

• International Franchise Association
• Entrepreneur Franchise 500
• Franchising.com

You can find more directories in this blog by P3 or by searching for franchise directories.

Guest Appearances

Another strategy to get word out when you’re setting up a franchise is to reach out to popular YouTube channels, podcasts, and publications. If you think you have a promising franchise story, reach out to us at [email protected]. We’d love to help you tell your story.

Public Relations Campaigns

Starting a franchise business is easier when you have brand recognition. Getting featured in major television shows, magazines, and newspapers can be tremendously beneficial.

Public relations skills require some expertise outside of your standard marketing. During the early stages of establishing a track record, you’ll want to work with a public relations company to get help build your reputation.

Step #12. Implement a Franchise Sales Process

You’ll need a process to let small business owners request and share information about your franchise opportunity. From there, you’ll be responsible for introducing them to your franchise business model.

This normally includes a combination of email, video, and in-person events. During the process, they may visit your franchise system business location and talk to other franchise locations. They may also want to get other information before they decide to join your brand.

Step #13. Onboard and Train Your Franchisees

Training is a crucial part of opening a franchise. Franchisors normally offer an orientation that new franchisees go through when they buy a franchise.

In addition, the best franchises have video training for ongoing development. Most will also have an annual franchise conference.

Build the content for all these different training opportunities and make it accessible to franchisees. For an example of best-in-class training, just look at fast food giant McDonald’s. Their management training is the equivalent of college courses that can be used towards a bachelor’s degree.

Step #14. Support Your Franchisees

As your franchise brand grows, you’ll need to help individual franchises in different stages of growth. A new franchise will need more support learning your processes, while a successful franchise may only need training on new products or services.

Once franchisees are approaching the end of their contracts, you may want to present a new franchise offering to successful franchisees. Typically, a franchisee who doesn’t renew their contract will sell the business before the contract ends or shut it down.

Some people decide to retire, which will make them former franchisees, but that doesn’t mean they won’t want to contribute to your company from time to time.

Step #15. Improve Your Franchising

As you build brand recognition, you may want to start offering additional benefits to your franchisees. This may mean adding new product or service options, reducing the cost of goods sold, or improving your vendor network.

Franchising FAQ

What are some examples of franchises in each industry?

Some popular franchises are:

• Home services: Molly Maid, Mr. Handyman
• Automotive services: Jiffy Lube, Midas
• Health and fitness centers: Anytime Fitness, Gold’s Gym
• Educational services: Kumon, Sylvan Learning
• Business to business: Minuteman Press, FastSigns, ActionCOACH, Jan-Pro, Coverall

How much is an average initial franchise fee?

The average initial franchise fee is $44,000, but franchise fees range from $1,000 to over $100,000.

Why would a new business owner want to buy a franchise over starting a new business?

There are a few considerations that impact whether a business owner should start a new business or buy a franchise.

• Start up costs: Investing in a franchise may have higher startup costs than starting a new business, but most franchises succeed where other businesses fail.
• Ongoing costs: Royalty fees add to ongoing expenses.
• Control: If you want to follow existing processes, a franchise is the better option. Starting a business makes more sense if you want to retain creative control and come up with your own methods.

Conclusion

At this point, you understand what franchises are and the potential pros and cons of starting a franchise. We also explained how to open a franchise business.

Small business franchising can be extraordinarily profitable, especially for a service-based business. Working with a franchise consultant is much more effective than learning how to start a franchise business from scratch.

Make sure to reach out to Tom if you’re ready to start your own franchise system.