Franchising fundamentals: top mistakes business owners make when franchising.

• Author: Thompson, C. Jeffrey
• Position: Legal Brief - Interview

You have created a successful small business and are now looking to expand; franchising may be an option you are considering. Franchising allows a business owner to leverage limited capital to grow a business concept. It is a proven business model and when done correctly, has tremendous advantages. But if done incorrectly, it can lead to disastrous and often illegal consequences.

By knowing how to navigate the potential pitfalls of franchising, you are more prepared to take your company-owned business and move it to a franchise business. Here are the initial questions you should ask yourself before franchising.

Am I a franchise?

By far the biggest and most problematic mistake a business owner can make is not realizing they are actually offering a franchise. Franchising is a highly regulated business. It is federally regulated by the FTC and each state can add to the numerous regulations. Failure to comply with the strict federal and state regulations can lead to a loss of one's business and an accusation of illegal activity resulting in civil and criminal penalties. Before selling a chain store or business concept to another person, you should speak with an experienced franchise attorney to make sure you are not selling a franchise. An experienced franchise attorney can guide you through the process of developing your business and knowing if you are inadvertently creating a franchise system.

Do I think franchising is easy?

If you are looking to make a quick and easy return on your investment, franchising is not for you. Franchising is difficult and complicated. It requires time, energy and ambition. There are a multitude of new and intricate business and legal decisions that have to be made before you are ready to franchise, such as: What is an appropriate franchise fee? What is an acceptable royalty fee? How should advertising for all franchisees be handled?

You also need to be able to communicate your business idea and concept in simple terms. Surprisingly, this is one of the more difficult aspects of franchising. Sit down and explain your concept to someone who is not experienced in business. If they can quickly understand your concept, you have a head start on entering the franchising arena.

What is my golden egg and is it branded?

Branding is the key to franchising. The brand is everything from trademarks to trade dress and all should integrate to promote your business. Your brand is what draws in customers and it is what will sell...