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Starting a Franchise

Overview of Franchising

What is franchising? The word "franchise" is derived from an Old French word meaning "free," and that's fitting; for thousands of people, starting or owning a franchise has been a means of attaining occupational and financial freedom. Generally speaking, a franchise is a business arrangement in which a business owner, or franchisor, authorizes a franchisee to use the franchisor's company name and ways of doing business in a certain geographic area; in return, the franchisor receives a fee or a share of the franchisee's profits. The best-known franchises are probably those in the fast-food industry, but franchises have been part of the economic landscape since the 19th century. Today, they account for significant portions of the service, retail, restaurant, and hospitality sectors. For many businesspeople, launching a franchise has been a fast and efficient way to expand a company; for many franchisees, starting or owning a franchise has been an accessible, life-changing economic opportunity.

What are the advantages of franchising? For the franchisor, franchising is an effective way to quickly grow a business and seize market share without being solely responsible for all of the financial risk and management such growth entails. The potential for profit is high, and franchisors are able to shift daily management and overhead costs to franchisees. For the franchisee, franchising is a way to own a proven and profitable small business without the cost and labor of starting from scratch. A franchise is a turnkey "business in a box," with nearly everything but daily operations and management devised and provided by the franchisor—including product development, training, national branding and advertising, and much more. The up-front investment in a franchise is usually significantly lower than it would be in a startup business.

What documents are needed to establish a franchise? Three documents are crucial: the Franchise Disclosure Document, or FDD, the franchise agreement, and an operations manual.

Is it difficult to produce these documents on my own? In short, yes. Two of these documents, the FDD and the franchise agreement, are complex and important legal documents that set out the terms of the relationship between you and your franchisees. If improperly written, they can leave you vulnerable to financial loss, lawsuits, regulatory action, and more. Your operations manual, meanwhile, is the document that directs your franchisees to do business the way you want them to; it's the franchisee's crucial go-to guide that ensures your business' good name and ongoing profitability. All three documents are very long and detailed. You and your franchisees both benefit when they are clearly, concisely, and knowledgeably written. Writing these documents from scratch isn't a job for amateurs. That leaves most franchisors with two options: Hire an expensive lawyer or franchise consultant or find pre-written documents (like those we sell here at FranchisePrep) and customize them.

Do I have to register my franchise in every state? Not every state. But 14 U.S. states require you to register your franchise before you offer it for sale. While the process is similar across all 34 states, there are key differences, and it is not uncommon for states to reject franchise registration applications simply because they lacked the proper forms or were not submitted in just the proper order. Franchise attorneys can register your franchise for you, though they charge as much as $10,000 per state.

How much does it cost to have a lawyer or consultant draft my documents? Fees vary, of course, but the general range is as follows: Initial drafting of FDD and franchise agreement: $15,000 – $35,000 Initial drafting of operations manual: $10,000 – $30,000 Attorney review of FDD, franchise agreement, and operations manual: $5,000 – $25,000

How long will it take to have a lawyer or consultant draft my documents? There is no hard and fast answer to this question, but typical time frames are as follows: Initial drafting of FDD and franchise agreement: 1 – 2 months Initial drafting of operations manual: 2 – 4 months Attorney review of FDD, franchise agreement, and operations manual: 1 – 2 months

How much does it cost to use FranchisePrep documents? We're franchisors ourselves, so we know that every penny of your capital is precious. That's why we've priced our products well below what you'd pay for a consultant or an attorney. We've also bundled our products for even greater savings.

Franchise Docs 101

What is an FDD? Required by law, the Franchise Disclosure Document, or FDD informs qualified prospective franchisees of their rights and obligations before they sign your franchise agreement (see below) and buy a franchise from you. The law requires you to provide qualified prospective franchisees with an FDD at least 10 days before they sign a franchise agreement. According to the Federal Trade Commission (FTC), an FDD should give prospective franchisees "the material information they need in order to weigh the risks and benefits" of investing in your franchise. The FTC requires your FDD to address 23 specific items of information about your franchise. Among them: your litigation history, past and current franchisees and their contact information, exclusive territory boundaries, a description of the assistance you will provide to franchisees, and the cost of purchasing the franchise.

What is a franchise agreement? When you and your franchisees "sign on the dotted line," this is the legally binding contract you'll put your pen to. It describes all your rights and obligations, as well as those of your franchisee. The franchise agreement sets the terms for every aspect of your relationship with your franchise buyers, including costs, royalties and fees, taxes, patents and copyrights, territory boundaries, operational stipulations, and much more—all of it varying according to your business and the way you want to run your franchise.

What is an operations manual? An operations manual is a detailed document providing your franchisees with exhaustive instructions for every aspect of your business. Typically running in the hundreds of pages, operations manuals include direction on policies and procedures regarding accounting, human resources, sales and marketing, legal guidelines, and much more. For you, the operations manual helps ensure that every franchise will be run the way you want it—the way you'd run it yourself, based on your ideas and experience. For your franchisees, it's the "bible"—the mother of all how-to guides, containing everything they need to know to successfully operate their new business. Adhering to the policies and procedures that have made your business thrive is crucial to your franchisees' success—and to yours. An excellent operations manual makes all the difference. It gives franchisees clear, detailed direction and ensures consistency from one franchise to another. Most important, it protects your business' good name.

How are FranchisePrep templates better? We believe our franchise document templates are superior to any others available for three key reasons: Our documents are proven in the marketplace. We've been providing franchisors like you with well-written, easy-to-use, and affordable documents since 2003. Our documents have helped lay the foundation for many successful franchises. Our documents are written and edited by experienced franchise attorneys. We combine up-to-the-minute industry knowledge with remarkably clear, concise, well-organized writing to produce thorough documents that protect your interests and help you communicate clearly with your franchisees. Our documents are simple to use. With features like "guidance boxes," Q&A lists to prompt your thinking about your franchise opportunity, and more, our documents provide detailed instructions that make it easy to correctly customize them for your business.

Franchise Prep Consulting

Do I need a consultant to start a franchise? No. Franchising is a tried-and-true process. Thousands of franchisors have preceded you, so there is no need to reinvent the wheel. If you're the kind of entrepreneur who likes the savings and satisfaction of doing it yourself, you can do nearly all of the work on your own using our proven franchising tools. On the other hand, if you'd rather not do the work, or if you want the extra assurance that comes with having your documents drawn up by experts, you might benefit from using one of our consultants. Call us at 866.502.7737 to see how we can help.

If a consultant isn't necessary, why might I want to use a FranchisePrep consultant? There are several good reasons to spend the extra money on a FranchisePrep consultant: Yours is one of the very rare businesses that requires unique or special language in its legal documents. You want the extra confidence that comes with knowing an expert has reviewed your documents. You'd simply prefer to spend your time attending to matters other than your franchising documents. If you fall into this category, we can help. Call us at 866.502.7737

Can FranchisePrep do all of the work for me? Absolutely. We can save you the time and labor of completing our templates and deliver documents that are complete and ready to use.

What if I need help completing just a single document? Give us a call at 866.502.7737. We'll be glad to help.

About FranchisePrep

Where is FranchisePrep based? We are based in the U.S., in Buffalo, New York.

How long have you been in business? We've provided consulting and document templates to franchisors like you since 2003

What industries do you serve? Our FDD and franchise agreement templates are appropriate for any kind of franchise. Our operations manual template is best suited for service-industry and retail franchises, a segment of the franchise market often overlooked by franchise consultants.

Who are the principals of your company? Our company is directed by franchising expert: Andy Klie In the course of his career, Andy has helped launch over 200 franchise brands including members of the exclusive Franchise 500 and several brands featured on the hit show Shark Tank. His expertise in starting, running, and franchising businesses was earned firsthand.

Does FranchisePrep sell franchises? No. We just sell document templates that make it easier and more cost-effective for franchisors to take their companies to the next level.

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