Franchising

The directions provided to each franchisee will likely have to be precise. Business owners, however, are frequently accustomed to running their companies on intuition, and it may be difficult for them to itemize all the infinitesimal but important obligations they fulfill every day. Franchisees will not have the freedom to improvise and will need to be told how to do everything from keeping the books to ordering supplies. Every step of the process must be carefully outlined. The business owner may have to rediscover what it is like to run a company for the first time.

Tariq Farid had owned four flower shops by the time he was 19. He remembers sitting with his mother, who helped him around the shop, when he was making sixty dollars a day, and he’d tell her of his dream to someday make seventy. When he reached his goal, he turned it in for another dream. Soon he was telling his mother that he wanted to make eight, nine thousand dollars a day. “It never ends,” he says.

It still hasn’t for Farid, CEO and founder of Edible Arrangements. That early experience was better than any business school for Farid, but it still didn’t prepare him for the challenges of building his next idea, a shop that sold bouquets made of carved fresh fruit, into an international franchise. When he started out, he says, the franchising wasn’t part of his business plan. “We mostly focused on building the business,” says Farid. Which means no job was too small for Farid to take on himself. When the company website needed photos of the product, Farid became an amateur food photographer. When his shop needed a more robust back end to allow them to fill more orders online, Farid built it. 

With his head buried in how to increase revenues that were already steadily growing, Farid says he didn’t think much about franchising until a man walked into his shop one day and said he wanted to open an Edible Arrangements in Boston. To see what might be involved in opening a franchise, Farid decided to do a test run himself, in the form of a second store. He found a building, filed the documents, and went through all the minutiae himself, from interior decoration to training the staff. He forced himself to work through each step of the process exactly as a new franchisee would. 

For the buyer, the document proves their right of ownership and serves as a receipt for payment made to the seller. The buyer, for their part, can ascertain that a physical transaction occurred and that they are the rightful owner of the real property. A quitclaim bill of sale is typically used for the selling or gifting property within an immediate family circle. It is also frequently used during the tax deed sale process, such as public auctions, where real property is purchased.

When a quitclaim transaction has taken place and the ownership of property is transferred from the seller to the buyer, it is important to have a record of the process since there is no warranty applied to the property.

Purchasing property “as is” means the seller is not guaranteeing the condition of the property or that the property is free of defects. Unless the seller adds a warranty provision for a certain number of days, the transfer is without a warranty. The “as is” clarifies that there were no verbal or written warranties made to the buyer. This protects the seller in case of a dispute.

All business owners looking to get into the franchise business to pay close attention to Item 19 on their FDD filing. This is where a franchisor outlines financial performance information. If everything’s not in order in a company’s Item 19, he’ll decline to work with them. These legal complications are an area in which the hopeful franchisor may want to seek out professional help.

The International Franchise Association is also a great resource when it comes to the legal issues surrounding franchising. The IFA compiles information on franchises, lobbies for legislation favorable to franchises, and provides resources and aid to businesses looking to become franchises. The association also publishes reports on the legalities involved in franchising, including one titled An Introduction to the Law of Franchising. Whether or not an interested small business owner manages to plow through the 450-page revised second edition may itself be a litmus test of an entrepreneur’s conviction.

The idea of growth is appealing, but a small business owner wants his or her company to scale at a reasonable rate. For some companies looking to become franchises, the new business model may mean expanding coast to coast, even internationally. For others, it may mean adding a handful of new outlets. The experts recommend growing at the rate natural to your business.

When a business comes to business to explore the potential of franchising, the first thing he does is sit down with them and carefully examine their proof of concept. “Before I start with anybody or take them on as a client, I have to do my own due diligence to ensure my eyes are wide open.” 

That someone wants to open a franchise with your company’s name on it does not mean you should let them. They’re going to be representing your brand, so be sure to have a system in place to make sure they’ll take your company in the right direction in a new market.

Farid says he has a way of knowing whether or not someone will make a good franchisee. “I used to call it the googledy-eyes test. If someone would come up to me and say, ‘I want to build a franchise, I think it’s going to be great!’ and they didn’t realize the hard work involved,” Farid says, he would pass. 

Over enthusiasm is as common in franchising as it is in any realm of business. Apart from the documents and financial information supplied by potential franchisees, he considers the personalities of the business owners. He doesn’t want someone who’s all passion but no substance. Better that they’re thoughtful and measured, as well as enthusiastic about their business. “Most franchises go to market with a shotgun approach. Often, they’ll sell to anyone. That’s a big mistake.”

Even after giving franchisees very specific instructions on hiring, training, and other practices, there will be, and should be, certain freedoms they are allowed. They are small business owners, too, and as the franchisor begins to step back from daily operations, he or she will have to rely on the judgement of the franchisees as they explore new business opportunities. Give them freedoms, but keep those freedoms circumscribed. 

Different franchises will have different ideas about the restrictions they want to place on their franchisees. They struggle with how to balance preserving brand identity with the touch and sensibilities of individual franchise owners.

Even as the franchisor begins to remove him or herself from the daily business of the franchises, he or she should spend extra time getting to know the franchisees.

A franchisee is unlike other types of small business owners. He or she has opened a new store or service provider and is responsible for its performance within a designated area. He or she derives a livelihood from the business and oversees all daily operations. Yet, there is always a larger corporate structure overhead, and how the franchisee works within that structure varies from franchise to franchise. 

A franchise model presents some particular challenges because, if business is good and new stores are opening, the company is always working with new recruits.