Getting Your Franchise Idea Off the Ground

By Michael H. Seid, Joyce Mazero

Assume for the time being that your concept is franchisable. Congratulations! Do you hurry up and start to develop your legal documents and marketing brochures? Not yet. Hold off a bit more. You have a host of business issues to focus on and decisions to make before you bring in the legal and marketing troops.

Brainstorming a strategic plan for your franchise

The business blueprint, often referred to as a business plan or strategic plan, examines the issues and makes the determinations needed to design and implement your franchising strategy. Although each company looking to franchise will differ, some of the key areas to consider in developing your franchise strategic plan generally include the following:

  • Accounting (control and reporting systems)
  • Capital requirements for the franchisor and franchisee
  • Communication with the franchisees
  • Consumer and other market research
  • Conversion strategy for independent operators
  • Cooperatives and buying groups
  • Core and tertiary market expansion strategy, including determination of the various classes of franchisees to use for expansion
  • Development and implementation of the internal structural elements of the franchise system
  • Franchise relationship strategies, including dispute resolution and dispute prevention
  • Franchisor field services
  • Financial planning and analysis
  • Franchisee operations
  • Franchisee recruitment, selection, and closure
  • Franchisee staffing, training, and certification
  • Franchisor organization and training requirements
  • Insurance requirements
  • International expansion and support
  • Investment hurdles to determine fees and other system revenue and costs
  • Legal documentation, including FDD and franchise and other agreements
  • Location (selection, acquisition, development, and management)
  • Management information systems and point-of-sale systems
  • Marketing (advertising, publicity, and promotion)
  • Merchandising standards and plan-o-grams
  • Monitoring mechanisms for product and service quality and consistency
  • Ongoing services provided to franchisees and a la carte fees, if any
  • Packaging and labeling for products sold to consumers by franchisees
  • Policy formation
  • Warranty and guarantee programs

The franchise system you ultimately develop and the franchisor-franchisee relationship you establish will be shaped by the determinations you make in designing the franchise system. You decide upon planning, policies, procedures, ongoing administrative monitoring, and support services in the strategic and tactical plan.

You can check out an expanded list of elements that you need to evaluate in the design and development of your franchise program at the Franchise Management Dummies page.

Fleshing out strategies to develop your franchise

After you develop your tactical and strategic plan, you also need to begin to develop some of the components required for executing your strategy. These include the following:

  • All the operating systems and procedures
  • Operations manuals for each class of franchisee, management, and staff
  • Operating manuals for the franchisor’s headquarters and field and other support personnel
  • Training programs required for all the system participants
  • Marketing programs for use by local operators to attract and retain retail and system customers
  • Marketing programs to recruit franchisees, including discovery days, websites, brochures, trade shows, and so on
  • The fee structure for the franchise system
  • Required documentation (developed by qualified franchise attorneys)

Creating a plan for action

Finally, you should create an action plan, which will organize and schedule the tasks you need to complete in implementing your franchise development plan. Your plan should provide for controls and feedback to ensure a clear direction for the company, an understanding of who is responsible for what, and the timeline for making everything happen. Control over the timing of your plan’s implementation is critical. The action plan ensures that something is going to happen and describes when to do it.

One reason that many franchise packaging firms skip the process of developing a strategic plan and instead substitute a lengthy questionnaire is that strategic planning is time consuming and can raise issues that you need to address to properly design, implement, grow, and support your franchise system. It also allows franchise-packaging firms to artificially keep their fees low but puts you at risk.

Developing the legal documents for your franchise

The final output of your initial strategic development is the preparation of the legal documentation for your franchise system. You should base all the terms contained in your legal documents on the decisions you made during your strategic planning process.

Your franchise agreements convey the information that legally binds you and your franchisee, spelling out the relationship between you and all your franchisees and describing the system. The FDD and franchise agreement provide prospective franchisees with at least the minimum information required by law and professional practices. The franchise agreement incorporates the business terms contained in your FDD that spell out each party’s obligations to the other.

To give you a better understanding of structure of the FDD, check out the Franchise Management Dummies page. In preparing the FDD and franchise agreements, reliance solely on a FDD questionnaire is not advisable. However, if used as a tool to expand discussion, a questionnaire can be helpful. You will find a sample FDD questionnaire on the companion site.

You should also prepare a strategy document to use with your consultant and franchise attorney. MSA’s proprietary document is called a business overlay, which is an enhanced version of a strategic and tactical plan that explains all the key issues to your attorney so that they can prepare the franchise agreements, franchise offering circular, and other required legal documents. It also provides guidance to the rest of the development team in areas concerning real estate, manuals, training, retail marketing, franchisee marketing, IT, and so on

In addition to its clarity, a business overlay saves the lawyers developing the franchise document a considerable amount of time because the issues the attorneys need to address are covered in detail.

After you complete your plan, you and your consultant should meet with your attorneys and other advisors and present them with your strategic plan. Seek their input and advice, because they have experience that should prove beneficial to your franchise system. Remember, though, that franchising is a business strategy, and your legal agreements need to reflect the decisions you made in your plan.

If the language in your agreements doesn’t reflect the thinking of management and your business plan, speak to your attorneys before the documents are completed. Although customs and practices exist in franchising, and some elements are routinely found in many franchise systems, none of those matter if they don’t work for your franchise.

One last bit of advice: Take your time and don’t get caught up in entrepreneurial fever. Professionals seize every opportunity to attend professional forums where they can exchange ideas with other professionals about best practices and worst practices in franchising. When franchising is done well, there’s no better method of business expansion.