Four Things to Consider before Franchising Your Business
1. Contract Relationship - A handshake and a verbal agreement are no way to start a franchise. You need to specify everything in writing by signing a contract with the franchisee. Many franchisors learn the hard way that they made a mistake by assuming promises and verbal contracts were enough to protect their businesses. Even with family members, the franchise contract is an absolute must. Don't jeopardize your success and future livelihood because you think an informal agreement is enough.
One of the most important aspects to franchising is deciding what sources of investment capital the franchisee is allowed to bring to the table. The franchisor must also decide on a royalty fee or the amount (percentage of profit or sales) that the franchisee must pay while operating under the franchise agreement. All aspects of the franchise must appear in the franchising contract.
2. Operations - As a franchisor, you are lending more than just your company's name and goodwill; you also lend your expertise in running the business. Remember that the better your franchisee does, better you do. Support is an integral part of the franchise operation. Many franchisors make the mistake of thinking they can sign the contract, sit back, and wait for the royalty fees to roll in.
Your business is a success for a reason; lending your expertise and providing support are more valuable than simply lending you business' name. Make sure you do everything possible to make the franchisee's business a success. Again, your income is directly proportional to the franchisee's income. Being a passive franchisor is no way to succeed.
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