Imagine taking the heart and soul of your brand and packaging it into a concept that can be expanded far beyond your local storefront. Whether you're a seasoned business owner eager to build an empire or a budding entrepreneur eyeing growth, franchising can be a game-changer.
In 2023, franchised businesses generated a total output of $860 billion1, providing owners with opportunities for exponential growth, market expansion, and the creation of a supportive network of individuals aligned with their vision.
Before you take on the role of franchisor, use this guide as a starting point. From creating a business plan to financing and fees, we’ll cover some key steps and considerations for creating a franchise.
A franchise is when an established business owner (called a “franchisor”) allows another person (a “franchisee”) to open and run an identical or similar business under the franchisor’s established brand.
This business expansion model allows franchisors to grow their brand and reach new markets without directly managing every location. At the same time, the franchisee gains the opportunity to run their own business with the backing of an established brand and a proven business model.
In exchange for ongoing support and the right to operate under the brand, the franchisee often pays ongoing fees to the franchisor, such as royalty fees based on a percentage of sales.
Here’s a quick example: Say you run a popular doughnut shop called Doughnut Village, and you’re ready to take the brand nationwide. You may consider franchising your concept, allowing franchisees to open a Doughnut Village in their area. You, as the franchisor, can expand your brand and revenue through additional locations, while the franchisee gains access to your proof of concept.
Franchising can be a lucrative expansion strategy, but it's crucial to thoroughly assess whether your business is ready. Start by weighing the potential pros and cons of franchising your brand:
Here are some possible advantages of franchising a business:
On the other hand, there may be potential risks and disadvantages of franchising a business:
When franchising a business, keep in mind that the process and requirements can vary significantly depending on factors like location, business type, industry, and your specific goals. Below are some key steps to explore:
How do you know whether your business is ready for franchising? When assessing franchise readiness, consider the following:
Franchising a business starts with a franchise disclosure document (FDD). An FDD is designed to disclose all the essential details about your franchise opportunity, including your business’s financial health, franchise fees and royalties, operational protocols, and potential risks.
The goal is to provide a transparent look into your business, helping prospective franchisees determine if the opportunity is right for them. Consult with a franchise attorney to create a legally compliant FDD that adheres to federal and state regulations.
In addition to an FDD, a franchise business plan outlines how to operate your franchise. It details key points such as your business goals, financial projections, marketing strategies, and operational procedures.
Here are some strategies for marketing your franchise opportunity to potential investors and franchisees:
Developing a franchise program is critical for maintaining consistency and ensuring all locations reflect the values and standards of the original brand. Here's why it's important:
In your franchise program, consider including information on the following elements:
Scaling your business through franchising may require a significant amount of capital for the initial setup, marketing, and training development.
Start by creating a budget that includes costs for market research, legal compliance, training, marketing, and technology, among other expenses. If needed, you can seek investors, loans, or alternative funding sources like crowdfunding or franchise-specific lenders.
Franchising can be a win-win for everyone involved. It not only allows you to grow and expand your brand, but it may also empower aspiring entrepreneurs to fulfill their dreams of business ownership.
If you're considering franchising your business, remember that with the right strategy and commitment, you’ll be one step closer to success. Grow with PayPal and explore dynamic strategies to help reach your goals.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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