How much does it cost to franchise a business?
Posted by General Legal Counsel
When we work with business owners who are considering turning their businesses into franchises, one of the first questions we get is “How much will it cost to franchise my business?” The difficulty is that there isn’t a hard and fast rule about how much it will cost to franchise your business but there are certain expenses you can expect and budget for as you are exploring the possibility of becoming a franchise owner.
- Exploring the Decision to Franchise – Many business owners see the success of popular franchises and decide that franchising is the best way for them to expand the reach of their business before realizing the costs including capital requirements and time commitments. However, there are number of different options for business owners other than franchising to grow their business and the first question for you to decide is whether franchising is right for the growth of your business.
- Preparing your Business for Franchising – Once you’ve determined that franchising is in fact the direction you want to go in, you may find that you need to take certain steps to prepare your business for the franchise process, this could including things like hiring an accountant to audit your books, hiring a regular bookkeeper to keep things in order moving forward and working with an operations consultant to document and streamline your business processes so that a franchisee can successfully replicate your business operations.
- Franchise Registration – Franchise law is a complex area of law, navigating where state and federal law meet can be messy and difficult. As a result you will want an attorney to help you with the initial franchise registration as well as the annual renewal. Your attorney will help you prepare a number of different documents to ensure that your application will be accepted including:
- The Franchise Disclosure Document – The Franchise Disclosure Document (FDD) is a legal document that you will share with prospective franchisees.
- The Franchise Agreement – The Franchise Agreement (FA) is the contract between the franchisor (you) and the franchisee. Since the FA is the legal contract that will control your relationship with your franchisees, you will want to make sure your interests are protected and that you comply with state and federal franchise laws within the FA.
- Filing Fees – Each registration state has its own application and filing requirements for franchise owners. Some states do not have filing requirements, whereas others, like California, have application requirements and require payment of filing fees. You should determine where you would like to offer the franchise opportunity and then include those filing fees in your budget as a franchisor.
- Selling your Franchises – Many business owners forget that in order to spread the reach of their business through franchising, they also need to budget for marketing and selling the franchises. All the preparation in the world will be wasted if you don’t have the budget necessary to promote and sell your franchise.
As you can imagine, the costs associated with each of these tasks can vary widely, the best thing you can do is talk to an experienced franchise attorney to start exploring your decision to franchise your business and if franchising is a good fit, then you can develop a comprehensive budget for the whole process.