Franchising is an efficient and cost-effective way to build your business.  At its core, franchising is selling the use of your brand to someone else.  There are two key components that create value for your potential franchisee; a recognized brand and a business model that can be easily replicated. Here are the key initial steps you need to take if you are considering growing your business through franchising.

Register Your Trademark

Before anything else, you must register your trademark!  Since your brand is a critical component of your franchise, it is extremely important to ensure your name and/or logo is protected.  This means registering your trademarks with the United States Patent and Trademark Office.  Without a federally registered trademark, you will not be able to sell your franchise. Not necessarily because you are prohibited legally, but because the franchise will not hold any value without trademark protection.

Protect Your Business Model

You must take steps to protect your business model, most importantly, your trade secrets.  A trade secret is any “formula, process, device, or item of information used by a business that has economic value because it is not generally known or easily discovered by observation or examination and for which reasonable efforts to maintain secrecy have been made”.  The first step is identifying the trade secrets you use in the operation of your business.  Then, before sharing any trade secrets with your franchisees, establish a plan to protect these trade secrets. Trade secrets should be shared only with those who absolutely need to know them for the operation of the franchise.  Further, consider what policies are necessary for your franchisees to implement in order to protect your trade secrets, such as, limiting access with password protections and making employees sign non-compete and non-disclosure agreements.

Multiple Sources of Revenue. 

When developing your franchise model, consider what sources of revenue are necessary for you to cover the costs of managing your franchisees. There are number of different ways to structure your franchise to produce revenue.  These include:

  • the initial franchise fee- a single payment for the right to become a franchisee;
  • royalty fees – monthly on-going payment for the continuous right to operate the franchise, usually a percentage of the revenue;
  • selling goods and services – franchisors often also play the role of vendor, selling goods and services directly to the franchisee;
  • marketing fees – coordinated marketing efforts are important to maintaining and growing the brand, and it is common for each franchisee to pay its respective share of the costs for these marketing efforts; and
  • other fees – franchisors may charge any number of other fees, including, software fees, equipment fees, late fees, non-compliance fees, and credit card processing fees.

If you would like to grow your business, have a recognizable brand, and a business model that can be easily replicated, perhaps franchising is right for your business. At Ser & Associates we assist businesses with establishing and selling franchises.  If you would like to explore the possibility of franchising, please contact us at 305.222.7282 or for a free consultation.

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