Path from owner to franchisor has many steps
By Jim Kendall
This column originally appeared in the February 9, 2015 Daily Herald
Hungry diners come from miles around for your pizza. Customers say your massage techniques are really effective. That inventory control plan you developed works; industry peers are interested.
Your friends keeping asking why you don’t franchise your business – whatever it is in real life – and you keep asking yourself, “Why not?”
You could become the next hot franchisor.
Pay attention, however, to cautions from two experienced franchise advocates: The career change from entrepreneur with one, or maybe two, locations to franchisor is a life-changing step that requires serious thought.
“You won’t be making pizza anymore,” says Michal Liss, a corporate counsel and franchise attorney at FRANLAW: Liss & Lamar PC, Oak Brook. “Your job changes. You’ll become a trainer and coach, supporting other people in their dream.”
Franchisors must be comfortable in relationships, Liss says, because “You’ll get to know (the franchisees) you’re coaching intimately. You have to have the desire to help people start and grow. Otherwise, you’ll be a square peg in a round hole.”
Goodbye pizza dough. Hello counseling.
Marcelo Alvarez, a Downers Grove business opportunity coach and franchisee of The Entrepreneur’s Source (TES), has similar thoughts. Running a store and being a franchisor are “totally different businesses,” Alvarez says. “When you’re a franchisor, franchisees call from all over the country with questions. You become a trainer – and a salesman.”
TES is a franchise business whose individual owners help people find their own franchises.
In some ways, becoming a franchisor approaches the ultimate entrepreneurial step. “The first test,” Alvarez says, “is whether you’ve built something proven and successful. Get it started and get two to three years under your belt.
“Your business needs to be something that can be replicated, not a place people go because they like the owner.”
The business will need infrastructure before you can franchise it. Among Liss’ suggestions in a paper worth finding at www.franlaw.com:
* A successful prototype. That’s the core business that got you thinking franchising to begin with, and it needs to generate enough profit to be attractive to potential franchisees – who will need enough cash flow to support their new business and pay you royalties.
* A name that can be trademarked.
* Operating systems that can be documented and taught to new franchisees.
Also necessary: A comprehensive franchise agreement and a franchise disclosure document, both of which require a franchise-experienced attorney, and compliance with federal and state laws that regulate pre-sale disclosures to potential franchisees.
You’ll need to recruit potential franchisees, which likely means a sales team. Marketing programs are typical; so is a business plan for franchisees to follow. Logo and signage are important. Supplies matter.
An operating manual may be the key item, however. “Some existing businesses may have an operating manual,” Alvarez says, “but most don’t. If the operational process is in the owner’s head, someone must sit down and translate the information.”