Buying a Restaurant Franchise

Buying a Restaurant Franchise

Do you have what it takes to be a successful restaurateur? Our franchise expert offers some words of wisdom.

There are many different types of business format franchises, but when most people think of a franchise business, their first thought is of food. The success and growth of the many big brand-name fast-food franchises makes this a logical first stop in the thinking process.

When evaluating restaurant franchises, you must focus on the characteristics of the business from a franchisee’s perspective to determine whether this industry is the right one for you. There are some wonderful advantages to having a food business, but there are also some challenges you need to be aware of before proceeding in this industry.

In assessing a food business, the main advantages are typically considered to be:

  • Built-in Demand. Consumers have been trained to look for franchise food outlets, which can represent a big advantage for a startup. You need to make sure the product offering of the food franchise has “staying power” in the marketplace rather than being a fad or fringe product.
  • Ease in Financing. Traditional lending sources are very familiar with the real estate and equipment needs of a prepared food operation, which may ease the challenge of obtaining startup financing. These sources also like the relatively high revenue production of a typical food franchise.
  • Track Record of Success. Many food franchises have multiple units and have been operating for a while, making it fairly simple to determine and verify their track record of success. That can help you make an informed decision about the business prior to getting involved.
  • Prestige. Whether valid or not, many people associate a high degree of glamour with a person who owns a food franchise business. The fairly high degree of status associated with this occupation is important to many prospective franchisees.

In assessing a food business, the main disadvantages typically include:

  • High Initial Investment. Most food franchises require a significant investment to get started. Food preparation stations, sinks, stoves and ovens, grease disposal systems, venting requirements, customer seating and bathroom areas–the list goes on.
  • Zoning and Code Compliance. The government goes to great lengths to ensure that any food business meets numerous codes and guidelines so the food product is safe for the public to consume. Complying with these regulations, both initially and on an ongoing basis, is time consuming and expensive. Virtually any food franchisor will provide extensive assistance to a new franchisee in terms of dealing with zoning, permits, code compliance and all other site-related issues, because the new franchisee probably doesn’t have a clue how to do this whereas the franchisor has lots of experience on these matters. If a food franchisor doesn’t offer extensive support on these matters (you can determine this during your conversations with existing franchisees), pick a different one.
  • Labor Challenges. Most food businesses require the services of a significant number of low paid employees to conduct their business. Turnover of these employee positions is normally very high, and recruiting and retaining a sufficient number of acceptable quality employees is typically listed as the number-one challenge in any food franchise.
  • Relatively Low Margins. In food operations, the franchisee has both the cost of goods sold and labor costs to contend with in an environment that is very price sensitive, especially in fast-food outlets. The net margins of most food businesses are not nearly as high as other (particularly service-related) franchises, and you’re also dealing with spoilage, theft and other issues that you don’t find in many other types of franchise businesses.
  • Quality of Life. As mentioned above, many people associate a high level of status with owning a food business, at least until they understand the facts of a typical food franchisee’s life. The hours can be very long, as you’re often the first to arrive and the last to go home. The labor challenges can be very frustrating and are the main reason owners cite for wanting to leave this industry. Then there’s also the issue of what a person smells like after spending long hours each day in a food franchise.

The secret to success in evaluating any food franchise (or any franchise for that matter) is to clearly identify the skills necessary to succeed, then make sure you either have them or go do something else. The food business can be very rewarding to a person who has the special blend of skills and aptitude to make the business work, and these operators are among the most respected in all of franchising because of their success.

The obvious question, assuming you don’t have previous experience running a food business, is “how do you know whether you have these skills and aptitudes?” The best answer, and one that is actually required by a few of the most successful food franchises, is to go to work in an existing unit and shadow the present owner until you’ve gained enough experience to know for sure. This isn’t going to be a process involving an hour or two–more likely it’ll take at least a few weeks to know for sure. The time commitment involved may seem high, but it is infinitely better for you to find out early (and without risking your life savings) if this business is not for you.

A final consideration related to food franchises is this: Some food franchises run very simplified operations and can provide a business model that avoids a number of the disadvantages listed above. These are typically businesses that don’t involve cooking a product, at least not on site. They may use a commissary system to deliver ready-to-serve products, or products that only have to be assembled in order to serve, to the franchise outlet. These types of businesses, like a Subway outlet, can avoid many issues but almost always still have to deal with the employee issues discussed above.

Give some serious thought to the franchisee role in terms of the tasks required in a typical day or week, the hours worked, the investment and the possible returns. Make sure you know what it takes to succeed and that you possess those qualities. Then you’ll know whether being a restaurateur is right for you.


How Do I Start a Franchise?

How Do I Start a Franchise?

Keep in mind these requirements when you consider making the move from business owner to franchisor.

Q: I’ve got a great business that I think would be perfect for franchising. How do I get started as a franchise company? What kinds of advisors will I need and where do I find them? Is there a good source of information for me to start with?

A: Congratulations on building a successful business. It is exciting that you are considering using franchising as a method of expanding your brand and operations. You have some great questions so let’s discuss each in turn.

First of all, one of the best starting points for researching this idea is the International Franchise Association (the IFA). The IFA is the industry trade association for franchising and has a host of resources that you can access to get started in this process. You can find the IFA and start your search by going to their Web site .

Starting a franchise company is not an easy or inexpensive process. There are a number of requirements you will have to meet and a few other things that, though not legally required, are also essential. These requirements include:

  • Legal. You will be required to prepare a standard disclosure document for your franchise operation. This document, called the Uniform Franchise Offering Circular (UFOC) is required of all companies, by the Federal Trade Commission, if they want to offer franchises for sale anywhere in the United States. In addition, there are a number of individual states that have registration requirements you must meet if you are going to offer franchises in those states. You will need an effective and experienced franchise attorney to help you meet these legal requirements correctly. As with any advisor, make sure to check the experience and references of attorneys when making this selection.
  • Accounting. You are going to need to prepare audited financial statements for the franchise company. This is actually one of the disclosure requirements under the legal section above so you won’t be able to complete legal until you have your statements audited. You’ll have to decide if you want to set up another company to franchise your concept or if you want to use the existing business entity you are operating as your franchise company. You’ll need an experienced accountant to produce these audited statements and to advise you on the structure of your business enterprise. Again, make sure you are getting someone experienced in operating in the franchise arena and check references prior to deciding on this person.
  • Systems. The heart and soul of any successful franchise company is systems. You will need to develop and completely document the systems that a franchisee will use to run their business successfully. You will need to develop a training program that will teach a new franchisee whatever they need to know to become a successful operator. You will need to formalize the marketing plans that a new franchisee will use to drive customers into their new unit. You will also need to design a sales system that you can use to recruit new franchisees into your franchise company. There’s a mountain of work getting all your systems set up and ready to go. You can hire outside consultants to assist with all this work but if you do, make sure you check references very carefully since there is a wide variance in terms of what these folks do and what they charge for it.
  • Mindset. One of the most important things you need to do in order to be a successful franchisor is to have the right focus and attitude. In your existing business, you’re the boss, you have employees and they probably do what you tell them to do without much resistance. Franchisees are quite different from employees and you need to make sure you don’t treat them as if they were employees. Successful franchisors use a lot of persuasion to get the franchisees to do what they want rather than issuing orders. It’s not as fast or efficient but you’ll find that you meet a lot of resistance from franchisees if you don’t do it this way. I don’t know about specific advisors related to this topic but there are numerous industry meetings and opportunities for you to interact with other franchisors and you should take advantage of all these as a learning experience.

The final thought I’ll leave you with is a word of caution. Most honest advisors in the franchise business will tell you that you’ll need at least $500,000 to $1,000,000 in initial capital to even think about starting a franchise company. You will probably work harder than you ever have for at least 2-3 years before you even start to make any money on your franchise operations, and it could easily be 3-5 years.

The rewards and satisfaction of building a successful franchise company are incredible but so is the price that you’ll pay to reach this goal. Make sure that you want to pay the price before you start this process and then go forward with realistic expectations and you should do fine.


3 Sources of Franchise Financing

3 Sources of Franchise Financing

Know how to make sense of the current economy and its impact on franchise funding.

Facebook Wants to Help Make Your App Super Smart
Everyone knows the current lending environment is a challenge–especially if you’re trying to finance a startup. Yes, there’s still financing available for qualified people, but selecting the right funding strategy is more important than ever. It’s time to get creative when thinking about financing options.

Despite what you hear on the news, money is available. There are institutions and individuals who haven’t been affected by the housing market and still have money to lend. It’s important to note, however, that we’re seeing some big changes from traditional lending procedures in the franchise industry.

The first change is that it’s more important than ever to start sourcing financing options before even choosing the franchise you want to buy. While historically we’ve seen much of the franchise finance market driven by home-equity lines of credit, this type of financing is more difficult to obtain in the current financial climate. Therefore, it’s never too early to look into financing alternatives.

Another change is that your credit score is far more important now than it was even a few months ago. In today’s climate, getting financing will be difficult with any credit score below about 700.

Also, once you’ve decided on your franchise and are approved for a loan, act on it quickly. Lenders aren’t going to leave credit commitments outstanding for 30 days or more the way they used to; they want you to act in five to 10 days. If you don’t take it, they’ll cancel their offer and lend the money to someone else.

In the past, people relied on time-tested approaches for franchise loans; but in today’s economy, you may need to get more creative. Here are three alternative funding sources to consider:

Franchise Funding Specialists
How do you know which finance options might be best (or even available) for you? Companies such as FranFund or Guidant, which live in this market every day, can explain potential strategies you can use in your financing efforts.

These companies typically have established relationships with various lenders that specialize in one or more types of franchise financing. They may also offer equipment-leasing options, signature credit lines, 401(k) rollover products, SBA lending, conventional lending, etc. Finally, they can tell you how much credit is realistically going to be available to you.

After gathering your financial information, the franchise funding specialists will formulate a lending strategy with you. Once you make the final decision to proceed, they will package your information and follow the process from beginning to end. Their knowledge and relationships in the industry are critical in expediting the transaction, and these companies typically don’t charge a fee for their services until or unless you actually receive your financing. So the upfront risk to you is limited to a small amount of your time.

Cash is King
We’ve heard it before. Well, this is never truer than in uncertain economic times. Many executives have been or are going to be displaced in this market shakeup, and they often receive a significant amount of cash to help them transition out of their old jobs.

This cash can come in the form of severance pay (lump sum or otherwise). It can also come as benefit continuations, retirement account settlements or rollovers. Ask yourself how you’re going to “invest” this cash in an effort to re-create your lost income or, better yet, build some additional wealth for your family.

Consider investing it in yourself by building a franchise that can support you. Many people, after considering this idea, come to the conclusion that they can produce at least as high a return using this strategy as they would in the stock market. They will also have far more control during the process.

Thank You For Your Service
For our country’s veterans, the government has established a program called the Patriot Express Pilot Loan Initiative. This is an SBA-guaranteed loan program for military veterans, those currently in the military who are close to retirement (Check the SBA website for eligibility requirements) or their spouses. The SBA will guarantee up to 85 percent of the loan. That means the lender only is at risk for 15 percent, which makes such loans more attractive to the lender. Best of all, the credit score requirements for Patriot Express loans are significantly lower than what we otherwise see in the current market, so it’s easier to qualify for these loans.

Honorably discharged military personnel should also look into the VetFran program, which the International Franchise Association started as a way to help veterans. To date, more than 300 companies have joined the program, which offers substantial discounts on fees and expenses as a way to show appreciation for honorable service to our country.

Because there are many ways to finance a new franchise, be prepared to do some careful research on the subject to find the option that will work best for you. Though the financing market has gotten more difficult in this tight credit cycle, there are always loan dollars available for the right person and the right opportunity.

Remember to ask everyone you think might be helpful in your search (including the franchise company you are interested in) for any advice and options that might be available to you. Start early, and continue to refine your efforts as you get closer to deciding on a franchise. Good luck.


10 Steps to Buying the Right Franchise

10 Steps to Buying the Right Franchise

Franchising is a safe way to start your own business. Just make sure you pick one the makes sense for you.

Recession, unemployment, tight credit, crashing stock market–we’re in hard times and it’s going to continue for a while. In spite of this, or maybe because of it, franchising is booming, with hundreds of thousands of people looking into franchise opportunities every day.

Business ownership is the American Dream. Franchising remains one of the safest ways of becoming a business owner due to the time-tested training and support available from top franchises in more than 80 industry categories–a number than continues to grow.

If you want to be your own boss, make sure you’re finding the best franchise for you, which may be different than what you thought given the market conditions. Following are 10 steps to selecting a great franchise in the down market conditions expected for 2009.

Step 1–Self-Evaluation
Ask yourself what you really want to achieve by owning a business. Things like, what hours you want to work, what kinds of things are you good at and like to do, how much money can you afford to invest and what returns will you need to produce from the business? Also, give some thought to where you want to live and operate your business, as well as what your exit plans are in the future. Once you understand what’s important to you, you’ll be able to evaluate any franchise opportunity and know if it’s a good match.

Step 2Financing
These are not normal times. Given what’s happened to our capital markets, you’ll need to have a clear idea of how much money will be available to you. Unless you’re sitting on a mountain of cash, start this process early on because the answers can be quite different from what they were just a few months ago. For more on funding, review my previous article, ” 3 Sources of Franchise Financing .”

Step 3–Evaluate industry categories
Take a master list of franchise opportunities (the Entrepreneur Franchise 500 published each January is the most comprehensive) and review it. Don’t bother with individual companies at this time, just focus on industry groups or categories. Based on your impression of each of these segments, ask yourself if it appears to meet the desired criteria you identified in Step 1. If it doesn’t, cross it off. You’ll end up with a list of possible industry segments.

Step 4–Look for recession-resistant segments
Take your list of possible industry segments and ask yourself a simple question: “Do I believe this is a business that will continue to do well regardless of the state of the economy?” This will be true of businesses like damage restoration, fast food, senior care or hair cutting, but it may not be true of others like optional expensive services businesses or upscale retail. Cross off industry segments if you believe that they’re not recession resistant so you give yourself the best possible chance for a successful decision.

Step 5–Start identifying individual franchise companies
Once you’ve narrowed down the list, look at individual companies and pick one that you think is representative of the category. Try to select companies that will have territories available in your desired area. From this list of companies, pick a few that seem most interesting or attractive to you based on your criteria identified in Step 1. It’s time to look at them in a little more detail.

Step 6–Request preliminary information from franchisors
After selecting a few companies that match with you, contact the companies and request basic franchise information. This might be on a website or in brochures, videos or other materials they may send you after you visit with one of their development staff. Review the preliminary information from each company to determine if, based on this further information, the company still appears to meet your criteria and is worth spending more time on. From this point forward, your time commitment on each active investigation is going to increase dramatically, so be selective.

Step 7–Study the FDD
After your initial contacts and the submission of a qualification questionnaire, the franchisor will typically provide you with its Franchisor Disclosure Document (FDD), an FTC-mandated disclosure document. The FDD contains extensive information about the franchise, including the history of the executives, any litigation the company has experienced, the names and contact information for the current franchisees, and a copy of the franchise contract. Review this information carefully and get any questions you have answered before you proceed to the next step.

Step 8–Call existing franchisees
The best source of information for any franchise system is the existing franchisees. Contact franchisees and ask them all about the business, their lives as franchisees, and what they think of the company. This is a good tool for evaluating how well a franchisor supports its franchisees, whether the startup cost projections are realistic and how effective the provided marketing materials are.

Step 9Visit the franchisor
Assuming everything else checks out, your second-to-last step is usually a visit to franchisor headquarters. This is a great time to get any final questions answered and to meet the people who will be helping you get your business up and running. Though this may seem like a formality, it’s a vital check-and-balance to make sure you are completely comfortable and confident in the company you are about to enter into business with. Also, keep in mind that they will be carefully evaluating you as a potential franchisee at the same time, so this final judgment is a two-way street.

Step 10–Make your decision
Once you’ve completed the preceding nine steps, it’s time to make your final decision. If you’ve carefully followed this process, you can be sure that you’ve made your choice for all of the right reasons, that this franchise opportunity does all of the following:

  • Matches your financial resources
  • Provides you with the lifestyle you imagined
  • Uses your particular skills and experience
  • Provides a recession-resistant product or service
  • Has a majority of happy and successful franchisees
  • Employs an experienced and enthusiastic staff of personnel who will help you achieve your dreams of business ownership success

Franchise Your Business in 7 Steps

Franchise Your Business in 7 Steps

Facebook Wants to Help Make Your App Super Smart
Franchising your business is a proven route to rapid growth. But becoming a franchisor is not an automatic ticket to success, especially in this challenging economy. In January, for instance, three established franchisors filed for bankruptcy protection: Taco Del Mar Franchising Corp., Uno Restaurant Holdings Corp., and Daphne’s Greek CafĂ©.

Still, many business owners dream of seeing their brand become a household name, with a network of franchisees from coast to coast or around the globe. When the right concept is franchised effectively, it can be a great expansion strategy that doesn’t require as much up-front capital as growing through company-owned units.

If you’re considering franchising your business, know that the process of becoming a franchisor is usually long and involves considerable cost. Just because you qualify to sell franchises doesn’t mean you will find buyers. Data from the International Franchise Association shows that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their first unit by the end of 2009.

Becoming a successful new franchisor entails making many thoughtful decisions early on that will affect your business for years to come. There’s also a lot of legal paperwork to wade through to make sure your business complies with federal and state laws that regulate the franchise industry.

Here’s our guide to the important steps you’ll need to take along the road to becoming a new franchisor.

Step One: Evaluate if Your Business is Ready

The first question to ask is whether your business is suited to being franchised. Beyond having a track record of sales and profitability at the existing business, there’s several factors to weigh here, says Mark Siebert, CEO of the national franchise-consulting firm iFranchise Group.

Consider your concept.

Most good franchise concepts, he says, offer something familiar, but with some unique twist to it. A good example is Florida-based Pizza Fusion which offers a familiar product–pizza–but with all-organic ingredients, delivered in hybrid-electric cars.

The concept has to appeal both to end consumers and to prospective franchisees. There should be an expectation that more units will create economies of scale and increase profits. Additionally, the business needs to be something you can systematize and replicate, not something that needs your personal touch to be successful.

“Ask youself, is the concept salable?” he says. “Can you clone it? Does it provide good returns?

Check your financials.

Most successful franchises take a business that’s already profitable and try to replicate that success in other locales. Cleveland-based franchise consultant Joel Libava says he likes to see companies with at least a couple of profitable units beyond the first one already in operation before a company tries franchising.

“Is it just one great restaurant and mama’s wonderful pizza sauce?” Libava asks. “Or did you keep growing?”

Gather market research.

Don’t rely on your gut feeling that your business would be a smash hit across the country. Gather market research to confirm there is widespread consumer demand beyond your home city for what your franchise business would offer, and room in the marketplace for a new competitor.

Prepare for change.

Becoming a franchisor means you’ll be engaged in entirely different activities than you were as a business owner. You’ll primarily be selling franchises and supporting franchisees now, instead of selling pizza or fixing toilets.

“Ask yourself if you’re comfortable having a role as a teacher and salesperson, selling and supporting franchisees,” Siebert says, “as opposed to going out there and doing it yourself.”

In addition, franchising your business will require that you relinquish some of the control you’ve had over how your concept is executed.

“Franchisees won’t do it exactly the way you would, even if they do it well,” says IFA president Matthew Shay. “If you are so married to your concept that you won’t let anyone else touch it, then franchising may not be right for you.”

Evaluate other alternatives.

Before you plunge into franchising, you may want to consider other options, Siebert says. Depending on your situation slower growth, finding debt financing or taking on partners are all alternatives that may prove better ways to move forward.

It also can cost $100,000 or more, so ask yourself if your company has the financial resources. Remember that while franchising allows you to grow fast, it also means giving up most of the franchise units’ future profits, Shay says.

Step Two: Learn the Legal Requirements

In order to legally sell franchises anywhere in the United States, your business must complete and successfully register a Franchise Disclosure Document with the Federal Trade Commission . In the FDD, you’ll be asked to provide a wide range of information about your business, including audited financial statements, an operating manual for franchisees, and descriptions of the management team’s business experience.

Beyond the federal FDD requirements, some states have their own rules for selling franchises within their borders. California and Illinois are generally regarded as having the most daunting registration process, says Libava. If you want to sell in one of these states, you’ll need to meet their requirements as well, at additional cost.

Franchisor Cindy Deuser, 51, co-founder of five-year-old franchisor Lillians Shoppes, says the rule binder her home state of Minnesota provided was two inches thick. It took the bargain-fashion-accessory company a full year and cost more than $100,000 to qualify in 45 of the 50 states, she reports.

“It took longer than we thought, and was very intense in terms of all the things you have to cover,” she says.

To advise and assist in this process, consultant Libava recommends hiring an experienced franchise consultant or franchise attorney. Often, a new company will be set up to act as the franchisor. Find an expert who can make sure you’re doing every required step correctly.

Step Three: Make Important Decisions About Your Model

As you prepare your legal paperwork, you’ll need to make many decisions about how you’ll operate as a franchisor. Key points include:

  • The franchise fee and royalty percentage
  • The term of your franchise agreement
  • The size territory you will award each franchisee
  • What geographic area you are willing to offer franchises within
  • The type and length of training program you will offer
  • Whether franchisees must buy products or equipment from your company
  • The business experience and net worth franchisees need
  • How you will market the franchises
  • Whether you want an owner-operator for each unit or area/master franchisees who will develop multiple units

New franchisors don’t realize how much each of these decisions can affect their future profitability, says Siebert.

“If you’re thinking either 5 percent or 6 percent royalty, for instance, the difference doesn’t sound big,” he notes. “But five years later, when you have 100 franchises sold, and they each make $700,000 a year, that’s a $7 million annual mistake. And you’ve signed a 10-year contract.”

Lillians’ Deuser says she and her sister/partner Sue Olmscheid, 45, ran many business-model scenarios with their franchise attorney before settling on their $25,000 franchise fee, 7-1/2 percent royalty and 10-year contract term. They seem to have hit a winning formula–Lillians has grown to 32 shops in its first two years as a franchisor with its unique concept, in which stores are only open a few days a month.

Be careful to note whether geographic variables such as weather or local laws may affect franchisees’ success. Territory size is important too, as too-large territories may have to be bought back later at a premium so they can be split up, notes IFA’s Shay.

In the case of San Francisco Bay-area solar-panel installation franchisor Solar Universe, the company is selling franchises in concentric circles moving outward from its headquarters, mostly in warm-weather states with high electricity costs and generous state green-energy rebates, says founder Joe Bono, 36. Solar Universe has sold 14 territories since qualifying as a franchisor in January 2008.

Inadequate training can leave your franchisees ill-equipped to implement your system successfully. Solar Universe spent nearly $1 million preparing to franchise, Bono says, including $150,000 to create a state-of-the-art training center for franchisees complete with indoor roofs where they can practice installations.

Step Four: Create Needed Paperwork and Register as a Franchisor

Once you’ve made the important decisions that shape how your franchise will operate, you’re ready to complete your legal paperwork. When you submit it, be prepared for authorities to critique the document and possibly demand additional disclosures before they approve your application.

While the FTC essentially just files your FDD away, you’ll need to wait state approval. Bono reports Solar Universe waited several months to receive comments back from the state of California on its filing, and it took four months in all to get approved there.

Step Five: Make Key Hires

As you prepare to become a franchisor, you’ll usually need to add several staff members who will focus solely on helping franchisees. In the case of Solar Universe, the company sells its franchisees the solar panels they use, so founder Bono says he needed a full-time hire to staff the order desk. The company also hired a trainer and a full-time “franchise advocate” to answer franchisee questions and resolve any problems.

For its part, Lillians Shoppes hired a trainer, a creative director, a marketing assistant and a franchise-process manager who helped get franchisees using company software and systems, says CEO Deuser. Lillians now has a full-time staff of seven. The founding sisters still do all the buying for the growing chain, but Deuser says growth means they are already looking into hiring a second trainer.

Step Six: Sell Franchises

Now that you’re in business as a franchisor, one of your most pressing activities will be to find franchisees and convince them to buy your concept. Lillians is unusual in that the company has sold all its franchises by word of mouth and doesn’t have a sales representative. To help stimulate interest, the company offers a $1,000 referral fee to anyone who sends the company a new franchisee.

At Solar Universe, Bono says they’ve hired two in-house salespeople to handle franchise marketing. The company has also entered into a partnership with the national franchise-consulting chain FranNet, whose consultants may present the company to their prospects. Other common sales techniques include attending franchise fairs or hiring independent franchise marketing firms to help locate investors.

Selling franchises is difficult because of the high risk involved for franchisees, notes Siebert. Your salespeople should know your business well and be able to tell a compelling story about why you’re a worth the investment of their time and money.

Siebert boils down the issue this way: “You’re saying, ‘I want you to give me all your money. Then, quit your job, give up your security and benefits, and go into a business you’ve never been in before. And follow my rules.’ You’ll need to establish a pretty high level of trust.”

Step Seven: Support Franchisees

As a franchisor, you’ll have gone through a lot to reach this point. But here – at the point where you begin supporting your franchisee network – is where a chain ultimately succeeds or fails. Your training programs and other support efforts will create quality control, notes Siebert, making sure the brand provides a uniform experience no matter which unit customers visit. With the Internet, this has increasingly come to mean providing ongoing online learning modules for franchisees to use.

“If you’re a restaurant operator and employ 20 people in a unit,” he notes, “you have thousands of new employees going through the system every year. Without ongoing training, it’s pretty easy to institutionalize wrong behaviors.”

At the same time, you’ll need to start marketing the growing chain to drive sales to franchisees. Many new franchisors underestimate how much this marketing and support effort will cost, says consultant Libava. Marketing encompasses everything from radio or print ads to uniforms, logos, fliers, and logo art on company vans.

“Trust that you’re going to need a lot of money for marketing,” he says.