Starting a Franchise – Four Important Considerations

In case you are planning to expand your existing business without having to invest greater amounts of capital, then a franchise is just the good solution for you. Basically, a franchise is a business that has already been established with a recognizable brand and existing market. This simply means that all the logistics have been put in place and all you have to do is buy the franchise. An investment in a franchise is considered a safer bet since the risk of starting a new business from scratch without any brand establishment is removed. In short, a franchise has every aspect of a business set out and established for anyone to take over and run.

franchise conceptWith your own franchise, you are still able to implement your own ideas and have the same freedoms to promote, market and manage your business as any other. This means that you are still in control of the running of the business. Starting a franchise involves a couple of things that are basically compliance issues. A franchise legal agreement sets out to protect the franchisor’s rights while allowing the franchisee certain freedoms to grow their business so compliance with all the guides and regulations that have been set is necessary. Here are some of the things that you should always know about to ensure they are fulfilled when you are starting a franchise. Rushing headlong into franchising may get you in trouble with the law if you are not careful. Having the right information before you start is therefore very important to success of a franchise.

Four Important Considerations in Starting a New Franchise

1.  Before starting a franchise, it is important to note that your current business should already be successful.  This sets the tone for the franchise and determines how much profit potential the business has.  Remember that franchising is an extension of your business empire and not a way to start a fresh business that has no history.  Don’t get trapped in the dot-com boom mentality that profits don’t matter when it comes to franchising.  They absolutely do matter and potential franchisees will expect to see a successful business running well before considering investing in one.

Once you have a successful operation, you can now “copy” the model of this business and multiply it several times by getting others to invest in a franchise.

2. Compliance with the Franchising Code of Conduct

The law has set it out clearly that as a franchisor, you have to comply with the franchising code of conduct. This is a set of rules that clearly outline your rights, responsibilities and the information you will need to reveal to franchisees. You also need to declare what your franchise agreement will involve. This will come in very handy later on when you are handling the disputes that may arise. One of the points to look at in the agreement include issues such as the ongoing royalty fees that will need to be paid out to the franchisor as the franchisee will be making use of your brand name during the period of engagement.

3. Understand your Tax Obligations

A franchise is not much different from any other business. You will need to know how exactly you will be taxed in advance and set up the right corporate structure for your business. This is actually very beneficial for you as you will be in a better position to predict your projected earnings. Royalties and payments that you will receive from your franchisees will be treated as income.

4. Agreement and Operations Manual(s) of the Franchise

As a procedure of starting a franchise, you will be required to draw up with a set of agreements and an operations manual. The agreements and the manual are very important as they dictate the way in which things will be handled in the franchise. The various obligations of the franchisor, which is you, and the franchisees are clearly spelled out in the manual. Some of the things in the manual include intellectual property (IP) or business know-how that will need to be protected. Businesses have information that is confidential in nature and when the franchise is being started, this kind of information gets to be shared among the various parties involved as a part of the process.

The operations manual also lays out step by step how the whole business is run daily. Everything from sales, order taking, and maintenance of premises is covered. The goal is to minimize any guesswork for the new franchisee so there is a reference point for consistency throughout the business operations.  Operationally, the business must be systematic so as to remove any human element that does not need to be a part of the smooth day to day of business.

In order to ensure that neither party misuses information that is privileged, there must be rules that outline exactly what happens in case of a conflict as well as disclosure of IP. These rules are contained within the franchise legal agreements. It is important because in case of any trouble the may arise in the future, the trade secrets remain confidential and no one can use others ideas, knowledge and findings for their own gains.

There are also other obligations that you are responsible for your franchisees. One is with regards to their occupational health and safety. In case of injuries, everything has to be ready. This will keep you prepared in case of any eventualities and you are also free of blame in case anything happens. To sum it all up, the franchising agreement and the manual lay out the road map for the entire franchise and acts as a reference in case of any conflicts that may take place in the future. It acts as a constitution for the franchise and a standard of operations. The success of the franchise will depend on how far you will go in implementing the agreement and standards in order to make a profit. This has to be consistent in order to make any franchise work. The franchise will depend on the input of each of the parties involved in order to work. You also need to have the confidence that the franchise will work, a drive to grow and market the business and a belief in the system in which you are taking part in.

Taking the Leap Forward

There may be some risks involved in starting a franchise but this does not mean that you should give up on making profit. A franchise has risks involved in it just like any other business. A well run franchise business helps to propel a brand further and faster than with purely organic growth. Innovation is crucial to ongoing success and having some new or creative business ideas to add to the franchise keeps the business at the forefront in its industry. So never be afraid of starting a franchise as this could be a life changing opportunity for you.

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