What Is Franchising?
Franchising is a business strategy where private entrepreneurs sell the rights to their business logo, name, and model to third-party outlets.
A franchise is beneficial to small businesses that cannot afford much finance and capital investment to operate a business startup.
Franchises often have a higher success rate compared to startup businesses.
Franchising Key Takeaways
- The franchise agreement is a legal agreement that creates the franchise relationship between the franchisor and the franchisee.
- According to federal law, the franchise agreement must include the fee schedule, and the use of trademark or trade name to be considered a proper franchise agreement before the money is exchanged.
- Before entering into a franchise agreement, franchisors must disclose to the franchisees the transfer conditions.
- Franchise agreements explicitly award franchisees the rights to use logos and trademarks in a particular way.
- Anything outside the explicit parameters or anything not explicitly mentioned in the agreement is not allowed.
- Franchisors and franchisees should aim to reach an agreement that is fair to both parties
- Before entering a franchise agreement, utilize legal help so you fully understand the obligations applying to both parties
Understanding How Franchising Works
Franchising simply expands the business and distribution of goods and services.
The success of a franchise is based on the relationship between the brand owner and the local operator.
While the franchisor and the franchisees share a common brand, each is in a different business, legal and practical sense.
The franchisor's responsibility is expanding its business, and supporting the franchisees, while the franchisee's job is to manage and operate the business as per the terms and the agreements.
In the US, a license becomes a franchise when:
- Franchisee business is substantially associated with the trademark of the franchisor
- The franchisee pays an initial and/or continuing fee for the right to enter and remain in the business
- The franchisor exercises control or provides assistance to the franchisee
Examples of Startups That Entered Franchising
1. Mr. Handyman
Mr. Handyman, part of the services Brands International franchise system, is our first example of startups that have thrived after successful franchising.
The company was founded in Chelmsford, Massachusetts in June 1996 by David Lavalle under the corporate name Mr. Handyman, Inc.
In the year 2000, the business entered into a franchise agreement with Service Brands International. Today, Mr. Handyman International, LLC is a franchise business providing handyman, commercial, and home remodeling services.
2. Kisses From Italy
Kisses From Italy, a US-based food restaurant chain focused on fast-casual and traditional Italian delicacies, is a good example of emerging brands entering franchising.
The company announced the launch of strategic franchising with Fransmart, a global leader in franchise developments. Fransmart will work to expand Kisses From Italy’s footprint in both national and international markets.
Kisses from Italy is seeking qualified single-unit and multi-unit owners looking to invest with an emerging brand.
Getting Started With Franchising
- Determine if franchising is right for your business
- Prepare a Franchise Disclosure Document As per the Federal and State franchise laws
- Provide the confidential operations manual to your franchisees
- Register your trademark with United States Patent and Trademark Office
- Establish the Franchise Company
- Register and file the franchise disclosure document
- Create the franchise sales strategy and set a budget
The business franchising process may be overwhelming especially for startups. Engage an experienced Franchise Attorney near you, to help you through the complicated processes.
Franchise your Business
If you're looking for quick growth, franchising your business may be something you want to think about.
When you franchise your business, you are essentially leasing the rights of your business model, brand and operations to somebody else.
This may be a big step for you, so it's important to consider what this process looks like and if franchising is a good fit for your business.
Nick Amucen, founder of Bio-One ($1.2M/Month) has over 90 franchises and dishes out everything you need to know about franchising your business:
When you decide to franchise your business, it’s usually for a few different reasons.
- You want to expand your brand while using other people’s money and efforts to do so. Or…
- You feel you have made a system that is replicable and want to make money teaching people how to sell, service, or serve your particle widget.
Franchising is an animal in itself. It is truly unlike any other way business or business structure out there. When one buys a franchise, they’re buying a business model, a branded logo, and a support system. What one does not buy is a promise of success or any guarantees. Look, a business is a business is a business. You still need to work the business, breathe the business and live the business.
Well, franchising can be a great model for the right company, but it’s not without it’s headaches. There is massive legal paperwork; tremendous regulations from the Federal Trade Commission (FTC), not to mention the individual States regulations on what a franchisor can and can not do with the people that buy your franchise in their particular State. There’s a lot to learn, too much to cover in this piece but it can be lucrative if done correctly.
I’m now on my fourth franchised organization and the game to me is winnable. Franchising has made me a millionaire several times over. I have sold over 350 units throughout all my companies and have gone international with two of those companies and about to be a third.
The Internet has changed the game when it comes to selling franchises quite a bit in the last decade. You can now buy leads from lead portals, work directly with brokerage houses, rely on your personal website through SEO conversions, use social media to target leads, etc. The days of running around the country to franchise trade shows are almost over. Trade shows still exist but it’s a very antiquated way of trying to sell a franchise. From what I see, only the new franchise concepts looking for a needle in a haystack go to franchise trade shows. I applaud them for taking action to get out there and go. Unfortunately, they’re normally left frustrated, disappointed and broke.
- 4,818 founder case studies
- Access to our founder directory
- Live events, courses and recordings
- 8,628 business ideas
- $1M in software savings