Franchising is one of the most influential ways to expand a business. In fact, the U.S. franchise sector is expected to grow by 2.5% in 2025, adding over 20,000 new units, according to the International Franchise Association. It allows you to scale rapidly by leveraging other people’s capital and entrepreneurial drive.
Franchising offers an incredible opportunity to spread your business with relatively low financial risk. But how do you franchise a business?
Being a franchisor means you have legal, operational, and relationship-based responsibilities.
You’ll need to ensure that your franchisees follow your system, offer quality products, and represent your brand in the best possible way. You provide them the tools, training, and support to succeed.
Franchising comes with a set of legal frameworks and compliance requirements. Understanding regional rules and regulations is crucial, especially when navigating your first launch.
This includes federal laws like the Federal Trade Commission (FTC) franchise rule, which mandates transparency and disclosures, and state laws that vary in complexity.
How to Franchise a Business
Franchising is a multi-step process that requires careful planning and legal considerations. Here’s a breakdown of the foundational steps to franchise your business.
1. Determine if Franchising is Right for Your Business
The first step in franchising a business is determining the right fit for your model. Franchising works best for businesses with a proven, replicable system. You may be a good candidate for franchising if your business is profitable, has strong brand recognition, and operates with a standardized process.
The number of franchise establishments will increase by more than 20,000 units, or 2.5%, to 851,000 total units.
Ask yourself:
Is my business systematized with repeatable processes?
Does my brand have strong recognition or a loyal customer base?
Can my business model be scaled easily without compromising quality?
If you answered “yes” to these questions, you’re likely ready to leap into franchising.
2. Issue Your Franchise Disclosure Document (FDD)
The Franchise Disclosure Document (FDD) is a crucial legal document that provides prospective franchisees with key information about your business, financials, and standard operational procedures.
It’s required by law for all franchise businesses in the U.S. to provide an FDD to potential franchisees before signing an agreement.
For example, platforms like HubSpotCRM can help manage your customer relationships and keep track of leads as you start selling franchises.
Your FDD includes:
The legal and financial history of your business
Information about your franchise system
Costs, fees, and obligations associated with franchising
Working with a franchise attorney to ensure your FDD complies with all legal requirements is highly recommended.
3. Prepare Your Operations Manual
An Operations Manual is a comprehensive guide for franchisees to follow. It explains running the business according to your proven systems and procedures. This is the blueprint that keeps everything consistent across franchise locations.
You can create and maintain this manual using tools like WordPress to host content, and for more structured project management, Sintra can help streamline team communication and task management.
Starbucks provides an extensive operations manual to franchisees, helping them maintain product quality, customer service, and brand consistency across its stores.
A well-structured operations manual ensures franchisees can easily replicate your business model and maintain quality standards across locations.
4. Register Your Trademarks
Before starting franchising, you must ensure your brand and trademarks are protected. This includes your business name, logo, tagline, and other distinctive brand features.
Registering your trademarks helps you safeguard your intellectual property and prevents others from using your brand without permission. This is essential in ensuring that your franchisees operate under a legally protected name.
5. Establish Your Franchise Company
To franchise successfully, you need to establish a dedicated franchise company. This company will manage all aspects of franchising, from selling franchises to providing ongoing support to franchisees.
Setting up a separate legal entity for franchising allows you to:
Separate franchise operations from your original business operations
Focus on the long-term growth and management of your franchise network.
Protect your original business from legal risks related to franchising.
6. Register and File Your FDD
Once your FDD is ready, it must be filed with the appropriate state regulatory agencies. Some states, like California and Illinois, have specific regulations for franchisors, and you’ll need to ensure that your FDD meets their requirements.
This filing process can take some time, so planning and allowing for any necessary revisions or approvals is essential. If you’re franchising in Canada, note that there’s no federal FDD filing regime.
In the six regulated provinces – Ontario, Alberta, British Columbia, Manitoba, New Brunswick, and Prince Edward Island – franchisors must deliver a compliant franchise disclosure document to prospects at least 14 days before any agreement is signed or money is paid (it’s provided to the prospect, not filed with the government).
In the other provinces and territories (including Québec), there’s no franchise-specific disclosure statute, but general contract and good-faith duties apply. And in Québec, French-language rules can require franchise/related adhesion contracts and marketing to be available in French. Plan timelines accordingly to meet province-specific and bilingual requirements where applicable.
Create Your Franchise Sales Strategy and Budget
Developing a robust sales strategy is key to attracting potential franchisees. You’ll need to establish:
A budget for marketing and advertising your franchise opportunities
Sales materials that clearly explain the benefits of investing in your franchise
A strategy for targeting the right franchisee candidates (e.g., local entrepreneurs or experienced business owners)
The cost of selling a franchise, including marketing, legal fees, and other expenses, should be accounted for in your budget.
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5 Strategies to Help You Succeed at Franchising
While franchising is a great growth strategy, success requires more than legal paperwork. Here are five key strategies to ensure your franchising efforts are a success:
1.Set Realistic Goals: Franchising is a long-term commitment. Setting clear, realistic goals will help you measure progress and stay focused. Your goals should address everything from the number of units you want to open each year to the training and support you plan to offer your franchisees.
2. Research Your Competitors: Before franchising your business, it’s essential to research competitors in your industry. Understand their pricing, marketing strategies, and how they’re franchising their businesses. This can help refine your franchise strategy and identify opportunities to differentiate yourself in the market.
3. Develop Your Franchise for Single and Multi-Unit Sales: Some franchisees prefer to operate one location, while others may want to open multiple units. Building flexibility into your franchise offering is essential to cater to single and multi-unit franchisees.
4. Ensure Your FDD Meets All State Requirements: Different states have different laws and regulations related to franchising. Ensure your FDD complies with state-specific requirements, such as those in California, Illinois, and New York. Working with a franchise attorney ensures you meet these regulations and avoid legal issues.
5. Learn Franchising and Engage with the Community: Franchising is a unique business model, and it’s essential to immerse yourself in franchising to stay informed about industry trends, legal updates, and best practices. Engage with franchise networks, attend events, and connect with other franchisors to learn from their experiences.
Advantages and Disadvantages of Franchises
Here’s a quick overview of the advantages and disadvantages of franchising:
Advantages of Franchising
1. Rapid Expansion
Franchising offers one of the most efficient ways to expand your business quickly. Since franchisees invest their capital to open and operate new locations, the financial burden of expansion doesn’t fall entirely on you.
This allows you to grow your business faster than relying solely on company-owned stores or places. Franchisees also assume the operational costs, which means you can scale while minimizing the financial risk typically associated with expansion.
2. Ongoing Revenue
One of the key financial benefits of franchising is the ability to earn ongoing revenue through royalties and franchise fees. These fees are typically a percentage of the franchisee’s sales or a fixed amount, providing a continuous income stream as your franchise network grows.
This creates a recurring revenue model that can significantly enhance your business’s profitability, especially as you expand into more locations.
3. Lower Risk
Franchising reduces the financial risk for the franchisor. Since franchisees fund their operations, you can scale your business with less risk to your capital. Each franchisee is responsible for the day-to-day costs of running the franchise, including equipment, staffing, and local marketing.
This structure allows you to grow your business without bearing the full financial responsibility for each new location, making it a safer and more scalable growth option.
4. Brand Growth
Franchising provides a unique opportunity to increase brand recognition and visibility. Franchisees serve as brand ambassadors in their local markets, marketing your products or services to a broader audience.
As each franchise location opens, your brand becomes more established, and with the right franchisees, your brand’s presence can extend far beyond your current location.
This broad exposure can build customer loyalty and enhance brand equity as your franchisees continue to promote your business.
Dunkin’ Donuts has expanded its brand globally, with over 12,000 stores worldwide, mainly due to its franchise model. The ability to rapidly grow through franchisees has been crucial to its brand recognition.
Disadvantages of Franchising
1. Loss of Control
One of the biggest challenges of franchising is the potential loss of control over your business operations. Once franchisees take over their locations, they are responsible for following your established business model, but may not always adhere to your exact standards.
This can lead to customer experience inconsistencies, service quality, or overall brand representation. While franchise agreements include strict guidelines, ensuring that every franchisee maintains the same level of quality and brand integrity is challenging.
2. Initial Cost
Starting a franchise is not without its costs. The process of preparing your business to franchise involves significant upfront investments. You must create a comprehensive Franchise Disclosure Document (FDD), trademark your brand, establish an operations manual, and ensure legal compliance with franchising laws.
Additionally, marketing your franchise opportunity, hiring consultants, and registering your franchise with state authorities can all add to the expenses. The initial costs can differ greatly depending on your industry and the size of your franchise operation, often reaching tens of thousands of dollars.
3. Complex Legalities
Franchising is heavily regulated, making it a complex process to navigate. You must comply with federal and state laws governing franchise relationships, which can vary significantly depending on where your business operates.
The Federal Trade Commission (FTC) has particular regulations, and individual states may have franchise laws, all of which require compliance. These regulations often require that you provide detailed disclosures to franchisees and maintain proper documentation throughout the life of the franchise agreement.
4. Time-Consuming
While franchising offers a great way to expand, it can also be time-consuming. Managing a franchise network requires ongoing support and oversight to ensure that each franchisee follows the established model and maintains quality. You must provide continuous training, marketing support, and operational guidance.
Moreover, resolving disputes, monitoring franchisee performance, and handling legal matters can take up much of your time. Ensuring that each location is aligned with your vision and standards requires constant communication and support, which can become overwhelming as the network grows.
Franchising Done Right Starts with Structure
Successful franchising is built on legal accuracy, preparation, and a clear business vision. You can manage and scale your business by following the proper steps like setting realistic goals, preparing your operations manual, and understanding the legal complexities.
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Frequently Asked Questions
How do I know if franchising is right for my business?
Franchising is best for businesses with a proven track record, standardized processes, and a replicable model. If your company is profitable, has a strong brand, and offers something unique, it may be a good fit for franchising.
What’s the cost of franchising my business?
Costs differ depending on the size and complexity of your business. Key expenses include legal fees for the FDD, trademark registration, and marketing. Depending on your approach, the total can range from $10,000 to $100,000 or more.
Can I franchise internationally?
Yes, franchising internationally is possible, but it requires knowledge of each market’s legal and cultural differences. Adapting your franchise model to local regulations and consumer preferences is crucial.
