Running a franchise company is a completely different business than selling products or services directly to consumers. As a franchisor, you sell the right to use your brand and system (i.e., the franchise) to franchisees who in turn sell products or services to consumers using your brand and system. Many new franchisors are caught of guard by the change in business model once they take the leap to franchising. As a successful franchisor, you have to balance the growth of the brand and the overall health of the franchise system with the needs and wants of franchisees—sometimes your objectives and franchisees’ objectives are aligned, and sometimes they are not. The franchisors that survive and continue to expand are those that understand how to run a franchise system.
You will find a lot of guidance on running a franchise system as a franchisor on this blog and elsewhere on the Internet, as well as through industry associations, including the American Bar Association’s Forum on Franchising and the International Franchise Association. We would also recommend that startup and emerging franchisors read a new book, Franchise Management For Dummies, co-authored by Michael H. Seid and Joyce Mazero. Although the book focuses on both franchisors and franchisees, it discusses creating marketing plans and branding and the secrets to continued success and future expansion.
The co-authors answered some questions regarding Franchise Management For Dummies in a Q&A published in Franchising World, a publication of the International Franchise Association. Mr. Seid made a key observation for any entrepreneur looking to franchise his or her business:
Most important for prospective franchisors is to understand that there are consultants and lawyers that we call franchise packagers. They offer cookie-cutter services — and that is a serious problem. Pick your advisors carefully and talk to their clients to understand their reputations.
Q&A with the Authors of Franchise Management For Dummies, June 05, 2017, Robert Cresanti, International Franchise Association.
In a previous blog post, I talked about picking between a franchise law firm and a consultant. As noted in Franchise Management For Dummies and on this blog, the franchise relationship between a franchisor and a franchisee is both a business and a legal relationship. Franchising is governed by complex state and federal laws regarding the offering and selling of franchises and the ongoing relationship with franchisees, including renewal and termination. Franchise law firms such as Larkin Hoffman are subject to ethical rules which require us to advice clients based on their best interests. Consultants, while they may be engaging in the unauthorized practice of law, are not subject to these same ethical rules. The Larkin Hoffman Franchise Team will not recommend franchising a business if we feel that franchising is not the best growth strategy or that the business is not ripe for franchising.
Mr. Seid continues in his Q&A noting that even among franchise law firms, not all franchise law firms are created equal. Franchising is a niche area of law. When choosing a franchise law firm, review the credentials and experience of the franchise lawyers and do your research on the reputation and work product of the law firm. You may want to talk to current clients of the law firm on their experience working with that law firm.
Picking the right partner in structuring your franchise system at the onset is important to ensure your franchise system starts on the right path. Remember, you will be signing 5 to 20 year franchise agreements with franchisees, so the terms you set in the beginning will govern the franchise relationship between you and your franchisees for the duration of the franchise term. Choose wisely.