Franchising Your Business: Should You Do It?

So you have a business, and it seems to be taking off. You want to take it to the next level, but the idea of you opening more stores or operations across the state or even the country seems overwhelming. What about franchising?

Franchising as the franchisor has a number of considerations. While it can be very profitable, it isn’t for everyone.

How is Your Business Doing?

If anybody is ever going to think of giving you money to operate one of your franchises, they’re going to want to see an established history of successful growth, expansion and profit. But then, if you didn’t have those things, you probably wouldn’t be considering franchising your business anyway. Still, it is something to consider—do you have enough to sell to potential franchisees?

Laws and Regulations

If you are thinking about franchising, you also will need to comply with state franchising disclosure laws.

Of course, the fewer states you franchise in, the less you’ll have to worry about, but franchise laws can differ greatly from state to state. As a general rule, however, all will require significant disclosure of information you may consider to be private. Revenue, costs, business model, lawsuits, what profit your stores or businesses make, and other private financial details may need to be disclosed to franchisees.

Overselling

Franchising also requires a delicate balance between selling the values of your franchise to potential franchisees, but not overselling. A lot of franchise litigation revolves around franchisors who oversold or overpromised financial expectations or business performance to aspiring franchisees.

Policies and Procedures

Because franchising relies on uniformity and franchisees following your business model exactly,  everything must be written down.

Policies and procedures, rules and regulations, and almost every aspect of the business must be specifically detailed in writing so franchisees know how you want your franchise run. Businesses that don’t have written policies will need to get them drafted so that all franchisees know how to operate the franchise the way you want it to be operated.

What to Charge

Of course, as a franchisor, you will want to make money off of your franchisees. On the other hand, you don’t want to price yourself out of the market, or make your fees so high that franchisees are closing their doors. This isn’t just a legal matter, but an accounting one as well—how much do you charge in franchise fees and other expenses to make it work for everybody?

Protect Yourself

Remember that you are trusting these franchisees with your business’ good name and reputation. Some franchisees may abuse that trust.

While litigation or legal consultations aren’t what you envisioned when you thought of franchising, you do need to protect your intellectual property and your business’ reputation, should a franchisee not abide by your company policies.

Let us help you grow your business or franchise the right way. Reach out to the West Palm Beach commercial litigation attorneys at Pike & Lustig for more information.

Sources:

ftc.gov/business-guidance/blog/2023/04/franchise-fundamentals-debunking-five-myths-about-buying-franchise

raymondjames.com/maggieohearn/resources/2024/11/15/should-you-franchise-your-business