How do I franchise my business?

If I own a business, which is successfully growing and making profits, I may choose to expand it by increasing my workforce, adding new offices, taking on extra staff and putting more investment into my company. But, this isn’t the only way.

Another way you can expand a business is by franchising it. This means granting other people the right to use your business name and business model to operate an identical business in different locations, in return for paying a licensing fee. This arrangement is called franchising.

The franchisee (the person or company who is operating the franchise) usually have to pay a fee upfront to acquire the right to receive the information, know-how, instructions, and guidance from the franchisor (the business owner) on how to operate the business.

Depending on the nature of the business, the franchisee may also have to find premises, and also pay to have the business premises fitted out with the colors, style, and branding of the franchise. The right to operate the franchise is usually granted for a specific period of time, usually five years, initially, with a right to renew the term.

A franchisee is usually granted a specific, limited territory where he has permission to operate the business. This allows the franchisor to create new franchise businesses in other areas, giving each one their own exclusive territory where they can operate their business without facing competition from any other franchisee for those customers.

There are two main documents which govern the relationship between the franchisor and the franchise. The first is the franchise agreement, which is usually a fairly lengthy legal document setting out the legal obligations of the parties. In particular, there will be obligations on the franchisee to protect the business information, know-how and intellectual property rights of the franchisor, and to operate the business according to the franchisor’s instructions. It will also include payment obligations and what happens when the term of the franchise expires.

The second major document is often called the ‘Operations Manual’. This is a manual that’s been created by the franchisor, describing the details of the franchisor’s business model and working methods – the ‘secret sauce’ he used to create his successful business.

The franchisee will be expected to keep this material strictly confidential and to ensure the business is operated only in accordance with the provisions of the Operations Manual. This ensures that the franchisee’s business will be run in a way which, all being well, should result in a successful business, and it also maintains a strict level of quality control which is important for maintaining the value and reputation of the franchise brand.