How to Franchise Your Business

Understanding Perspectives of the Franchise Business Model

Marc SteinerFranNet of Southeastern VirginiaFebruary 9, 2016

Topics for Discussion

• Franchise Stories

• Overview of Franchise Business Model

• Finding the Right Business Fit

• Becoming a Franchisor

A Franchise Story

• Over 27 years in business.• Work as education partner with SBA, SCORE,

and the ASBDC. Only consulting firm with those relationships.

• Locally based.• Affiliated with strategic franchise partners.

FREE TO PROSPECTIVE FRANCHISEE

Who is FranNet?

What is Franchising?

The creation of a distribution channel to build brand identity and attain market dominance…

QUICKLY!

Franchise is…

A license to use:• Name and

trademarks• Products• Business Systems

In exchange for:• Initial franchise fee• Ongoing royalties

FTC 3-Part TestIf an entity:1.Uses your name2.Uses your system of operations3.Pays you feesThen, your company is probably a franchise

Franchise is not…

• Non-profit businesses (for profit subsidiaries are eligible)

• Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors

• Passive businesses owned by developers and landlords not actively using or occupying the assets acquired with the loan proceeds

• And many more as governed by the Federal code and SBA SOP

Government Disclosure:

FDD

Franchise Disclosure Document•Franchisor Info

– Time in business– Business experience– Bankruptcies– Litigation

•Costs– Total Investment

• Franchise fee• Other fees

(Adv, Equip, Supplies, Insurance, etc.)

• Working capital– Royalties

•Franchise Contract

• Obligations for Franchisor & Franchisees• Territory• Listing and Contact Info For:

• Current franchisees• Past franchisees

• Earnings Claims• Financial Statements• Manager Policy• Renewal, Termination & Transfer Policies

Government Disclosure:

FDD

Franchise Economy

Franchises Are Not All the Same

• Many Units vs. Fewer Units

• Older, well established vs. Newer

• Structured vs. Flexible Systems• Expensive vs. Inexpensive

There is no automatic correlation between the cost of the franchise and the potential return.

Finding a Great Fit

• Assess your goals and skills to develop your personal business plan• Take the Personal Franchise Assessment

• Develop a personal plan (or model)• Personal and business budget• Follow a Research Plan

Separate the function of the business from the function of the business owner

Different Business Models

Types of Customers

Service or Product

New or Established Industry

Room for Growth

Other Items?

Employees

Budget

Business Environment

Full or Part-timeHours

Number of Units

Business Preferences

Transferable Business Skills are the Key

CustomerService

MarketingManagement

Sales

Research Plan

Buyer’s Perspective

Advantages Disadvantages• A proven, time-tested business

model that works• Predictable future results• Very attractive to lenders• Transparent due diligence

process with the franchisor and existing franchisees

• Recognized brand name and turn-key operating systems

• An seemingly endless and overwhelming number of concepts to choose from

• Paying a franchise fee • Royalties• Reporting, compliance, and

mandatory attendance for training, annual conferences, etc

Professional Advisors

Additional Resources You Should Use

AccountantFranchise Attorney

Franchisor Investment

• Creating a business plan as a franchisor

• Developing legal documents• Developing an Operations Manual• Creating marketing plans and materials• Developing franchise sales channel

Franchisors’s Perspective

Advantages Disadvantages• Capital provided by the

franchisee• Accelerated Growth• Motivated management• Risk reduction

• Per unit contribution < Company unit economics

• Litigation Risk • Issue of Control• Brand risk

SummarySuammary

• Franchising is large part of economy • Understand ROI from different

perspectives• Franchisee matching important• Being a franchisor requires planning

and investment

Summary