The first consideration after deciding to franchise involves calling a lawyer and getting ready to invest some capital. The Federal Trade Commission (FTC) requires a Federal Disclosure Document that details information about the franchisor and the company to be franchised. The contractual agreement between the franchisor and franchisees, or Franchise Agreement, must also be on file with the FTC. In addition, each state has requirements that can be costly to navigate. Depending on the number of states in which the franchise will operate, these costs can range upwards of $100,000.
Franchisors must then make several key decisions about their business model. They must set down a franchise fee and royalty percentage, as well as the terms of the agreement. Training program specifics and materials must be chosen, and franchisors must decide whether franchisees will be expected to purchase materials or equipment from the company. During this time, franchisors often expand marketing efforts, as they will largely be responsible for spreading brand recognition throughout the market.
Franchisors often overlook another critical expense—the hiring of additional staff. Some personnel will be hired to support and train franchisees; others will sell or support products, equipment, or software necessary to the franchise operations. Marketing personnel will be necessary as well as franchise salespersons, since the franchisor must reach out to both consumers and prospective franchisees to ensure success.
After these preparations are established, the franchisor must prepare to take on new roles. Instead of acting as a business owner, he or she must now become a trainer, mentor, and marketer. Instead of focusing on the daily needs of one business, the franchisor must now commit to supporting his or her franchisees. This fundamental change turns the franchisor from a successful entrepreneur into a leader whose livelihood will depend on the success of each franchise.