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16 Strategies for Smarter Franchising

History is littered with franchises that failed. Yet that's one of the great things about franchising: Thousands of entrepreneurs have stood exactly where you're standing now. They've made the mistakes and learned the hard lessons so you don't have to. Following is some of the best advice on franchising we know, based on our experience and that of other franchising pros.

1. Before anything else, be profitable.

People buy franchises to make money. If you're going to sell your idea, you have to make it worthy of emulation and that, in short, means profitability. If your business isn't yet profitable, continue adjusting your business model until you're making money. Be profitable first; then think about franchising.

2. Be sure there is sufficient ongoing demand for your products or services.

Without proven demand, you're merely selling potential. Franchisees want to know that there will be a steady supply of customers for their new business and that your products and services aren't subject to fickle shifts in consumer preference. Your prototype location can demonstrate demand.

3. Know your competition.

Knowing the always-shifting playing field is crucial for your success. You need an up-to-the-minute understanding of both competing franchisors and competing independent businesses. This will help you strategically position your products or services.

4. Build a management team that is franchise-ready.

At the core of any successful franchise, you'll find strong leadership that provides ongoing support and training to franchisees. Your management team should be composed of both internal managers and qualified outside consultants with a deep understanding of your industry, as well as knowledge of the unique legal and business aspects of franchising.

5. Make sure you're well capitalized.

Franchising often requires more capital than people expect. Whether you're in the planning stages or making final launch preparations, maintaining sufficient capital is crucial. Don't expect to see big profits in your first year. Royalty income will be minimal, and much of the income from franchise fees will be reinvested in training, marketing, and paying down debt.

6. Secure your trademarks, service marks, and other intellectual property.

Your success lies largely in your ability to distinguish yourself from competitors—to promise customers an experience they can't get anywhere else. That's why it is crucial to take the legal steps necessary to protect your trademarks, service marks, trade secrets, copyrights, business methods, process patents, and more.

7. Make sure you have comprehensive legal documentation that reflects your company's business strategies and operating policies.

A well-drafted FDD and franchise agreement are of paramount importance—drafting them correctly now will keep you out of the courtroom later. Your FDD must be prepared in accordance with applicable state and federal disclosure laws, while your franchise agreement must strike a delicate balance between your rights and obligations and those of your franchisees.

8. Provide your franchisees with an outstanding operations manual.

Producing an operations manual can be tedious and time-consuming. But there is no substitute for an excellent, exhaustive, well-written operations manual. It's your crucial tool for ensuring that franchisees operate your franchise according to your wishes, in a way that is profitable and protects your business' good reputation.

9. Create a comprehensive training program.

Along with the operations manual, your training program is your opportunity to make sure franchisees and their employees do things the right way—your way.

10. Build an excellent field support staff.

Your ability to duplicate the level of success and quality you've achieved in your prototype business is in the hands of your field support staff. Select and train them well, making sure they know the intricacies of the franchise business, are sensitive and attentive to the needs and concerns of franchisees, and are diplomatic and responsive in addressing franchisee issues.

11. Forge good relationships with suppliers, lenders, and other vendors.

A rich network of resources and expertise that you can count on is vital. In addition to suppliers and lenders, you'll want to work with a good leasing company that can provide capital for equipment and supplies. If you intend to lease equipment directly, be sure your lease agreement contains terms that are favorable for you. Finally, registering your franchisee system with the Small Business Administration will help ensure that your franchisees can secure capital to cover their initial expenses.

12. Grow robust research and development capabilities.

Once your franchises are up and running, it's up to you to continually provide new and refined products and processes to your franchisees. Maintaining the status quo is a sure way to stunt the growth of your business.

13. Establish an effective franchisee profile and screening system.

Many people dream of running their own business, but far fewer have what it takes to do it well. You'll want a solid process for qualifying your franchisees based on their finances, business acumen, and character.

14. Set up effective reporting and record-keeping systems.

This helps you routinely evaluate the performance of your franchisees and ensures that royalties are reported accurately and paid promptly.

15. Implement a solid communications plan.

Like all relationships, franchising demands communication. Open, routine dialogue with your franchisees builds connections, reduces conflict, and minimizes the chance of litigation.

16. Establish a comprehensive marketing program.

Franchisees will look to you for local, regional, and national marketing campaigns that increase sales. These campaigns should be based on the measurable successes of your own marketing programs. Your campaigns will be aimed at customers, of course, and also at new prospective franchisees, so you can keep your business growing.

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