Taking the Step to Franchise

One option entrepreneurs may consider for expanding their business is franchising. This may have been part of the development plan initially, or the idea may have taken shape and grown from outside as others expressed interest in trying to copy a successful concept — either a proven, mature business or a new and trendy one. 

Franchisors should make sure to have all their ducks in a row prior to launching the franchising efforts. Franchising a business prematurely is likely to result in failure, a waste of time and money, and litigation. Taking the time to properly refine and institutionalize the business operations and develop an infrastructure for the franchise system will put the franchisor in the best position to offer a viable franchise opportunity and help the franchisees, and the franchise system, succeed. 

Brand Name Recognition: Because brand name recognition is the cornerstone of a franchise system, those planning to franchise should make sure their brand name is strong, available and registered on the principal register of the U.S. Patent and Trademark Office. Important first steps are to determine the availability of that brand name, discuss the strength of the brand name with a trademark attorney, and register it with the USPTO. 

Methods & Systems: It may be necessary to refine the business methods, systems and marketing practices and trade dress of the business. The franchisor should locate vendors and suppliers for products, services and FF&E (movable furniture, fixtures and other non-permanently installed equipment) and evaluate them in terms of price, quality and customer service. It’s important to work the kinks out of methods and systems and establish best practices. It’s also important to track the results of the various past marketing efforts. Taking the steps necessary to improve the economics of the business to make it profitable — particularly after prospective franchisees pay the franchise fee, royalties and marketing payments — will help ensure the franchise’s long-term viability. 

Standardization: A critical element in franchising is institutionalizing the business methods, systems, marketing practices and trade dress. Standardized recipes, prep guides and operational procedures are necessary so that product and service offerings will be consistent (and consistently good) from unit to unit. Standardization is also necessary for the franchisor to teach its franchisees how to establish and operate the business. Franchisees will appreciate and benefit from proven marketing practices. Trade dress will streamline build-out and enhance brand name recognition.

Operating Manual: Franchisors should prepare an operating manual for the business. It is common practice for business owners to give their employees an operating manual; a franchise system operating manual is a similar document. It conveys key information that the business franchisees (and their managers, chefs and other staff members) need to know about operating the business, such as recipes, opening and closing procedures and employee responsibilities, to protect the franchise system and the goodwill associated with the franchise’s trademarks. However, in the context of a franchise system, it is critical that the operating manual (and the training program, as well) not address the franchisees’ relations with their employees, as that could result in liability to the franchisor in connection with franchisees’ operations.

Training Program: Franchisors should establish a training program for the business. Like an operating manual, a franchise system training program is similar to the training program businesses will have new employees complete. It trains the franchisees how to operate the franchised business. It also trains franchisees how to be owners of the business. 

Visual Language: Franchisors should have a Web design professional create and build a consumer website for the business. It is important to make sure the website can be expanded to accommodate all franchise marketing activities and franchisee intranet requirements and is designed to utilize current SEO and SEM techniques to maximize the franchise’s presence. 

Support: Before bringing franchisees on board, franchisors should decide what initial and ongoing support and benefits they will provide or make available to their franchisees. Site location and evaluation services or a list of required site criteria? Architectural design services or prototype plans? TI build-out services or assistance, or prototype plans? Established sources of supply? Bulk purchasing power? FF&E brokerage or ordering services or a list of required items? R&D with respect to new product offerings? The list can be exhaustive. 

The most critical element of being able to establish and operate a successful franchise system is a successful business that has withstood the test of time and can be replicated. Doing one’s homework early will enable a franchisor to make the business as successful as possible and put one in the best position to offer a viable franchise opportunity and help one’s franchisees, and franchise system, succeed.  

Susan Wells is a partner at Wells & Gerstman. She has practiced law for 38 years and specializes in franchise law; her 25 years of experience in franchise law include representing Cold Stone Creamery from the time it started franchising until it achieved approximately 1,500 units at the time it was sold to Kahala in 2007.