How To Franchise Your Business
How Franchising Works
Alternatives
Quality Control
Legal Aspects of Franchising
We are going to try to cover a great deal of information, so we are asking that you hold your questions until the end of the session unless they are on a particular slide.
AboutiFranchiseGroup
More hands-on experience than any other firm
• Consultants with over900 years of franchise experience
• 98 out of the top 200 franchise companies
• Offices in Chicago, Dallas, Atlanta, Miami, and Dubai
More “senior level” experience
• Hands-on experience at start-up and established franchisors
• Former CEOs, CFOs, EVPs of more than 50 different franchise companies
▪ Adecco, Armstrong Tile, Auntie Anne’s, Capriotti’s, Dunkin Donuts, LINE -X, McAlister’s Deli, Pearle Vision, McDonald’s, PIP Printing, RE/MAX, Snap -on Tools, and other national brands
The ability to bring more resources
• Hands-on experience at start-up and established franchisors
• Former CEOs, CFOs, EVPs of more than 50 different franchise companies
Breadth across four functional areas
• Strategic planning
• Quality control
• Marketing
• Organizational development Franchise experience in 50+ countries
Numerous Awards and Publications
Seven years in a row, voted the #1 Franchise Consulting Firm in North America in an independent survey of over 1,100 franchisors
AboutTopFireMedia
A Premier fully-integrated public relations and digital media agency specializing in franchised businesses
• Public Relations
• Search Engine Marketing
• Content Marketing
• Social Media Publishing
• Pay-Per-Click Advertising
• Website Design & Development
Proprietary AI driven ”Look -Alike” model that drives leads at less than half the national average CPL Team with Hands-On Franchise Experience
• Real world experience with nearly two dozen brands
• Efforts have resulted in tens of thousands of franchise leads
• And many hundreds of franchise sales
Recent honors and awards:
• Top supplier from Entrepreneur five years in a row
• Best New Agency (Ragan & PR Daily Ace Awards)
• PR Agency Elite– Mission: Fit to Own (PR News)
• Best Website Finalist (PR News)
• Best Media Relations Campaign Finalist (PR News)
• Best SEO Finalist (PR News)
About FranDevCo
A premierfranchise developmentandsales organization
Helps emerging brands realize their full potential
Placed over 1,100 units with more than 600 franchises
Beyond sales, serves as an outsourced development partner with a consultative process
Support brands across diverse sectors
• Residential and Commercial Services
• Automotive
• Quick-service Restaurants
• Fitness
• Health and Wellness
• Beauty
• Pet
• Youth Enrichment
• And more
Recent honors and awards:
• Top Supplier Award from Entrepreneur
• Employee Satisfaction Award from Franchise Business Review
What Is Franchising?
• FTC rule 436 cites three elements that legally define a franchise:
▪ The use of a common trademark
▪ The exercise of control or provision of assistance
▪ The collection of fees, royalties, mark -ups or other monies from the franchisees
• If you have all three elements, you are a franchise, regardless of what you call it
• Some state definitions vary, but are similar
• Do not have to use the “f -word”
How Franchising Works
Franchisee typically pays
• Franchise fee average about $35,000 to $45,000
• Royalty range between 4% and10%
• Advertising fees range between 1% and 2%
• Franchisor will often sell product to the franchisee
Franchisor typically provides
• Trademark and Branding
• Initial training
• Operations manual and systems
• Ongoing supervision and support
• Other support services
Is Franchising Right for My Business?
Franchise vs. Company-Owned
Pros
• Leverage Capital
• Speed of Growth
• Motivated management
• Reduced risk
• Few operational concerns
• Higher quality
• Organizational leverage
• Must “share profits”
▪ Franchise unit will usually generate less profit than a profitable unit
▪ But far more profit than an unprofitable company-owned operation
• Less Control
• Good relations with franchisees take work
• MYTH: Litigation
Analyzing the Company Growth Option
What are yourgoals? BE SPECIFIC!
• Certain levels of profits
• Sell company for a specific amount
What is yourrisk tolerance?
• How much are you willing to invest and re -invest?
• What other resources do you have to bring to bear?
Conduct Cash Flow Analysis to See if You Can Reach Your Goals
• Goal = Sell company for $10 million at the end of five years
• Two units in operation
• Total Equity Investment in New Operation = $150,000
• Total available capital = $200,000
• Existing Free Cash Flow for Reinvestment = $100,000/year
• Units Break Even in First Year
• After that, Free Cash Flow from New Units = $50,000/year/each
Alternatives to Franchising
Laws Governing Third-Party Relationships
Choosing the Right Growth “Vehicle”
The decision should be goal-driven
• Distance
• Speed
• Obstacles
• Risk tolerance A Volvo or a Rocket Ship?
You don’t have to choose only one vehicle!
Don’t decide to franchise!
Instead, decide:
• Do I need a third-party distribution channel?
• Do I want that channel to be branded?
• If it is branded, do I want to control quality?
• How do I want to be paid?
The law (or your lawyer) shouldnever dictate your good business decisions
Is Your Business Franchisable ?
Franchisability
Proven prototype
Credibility
Differentiation
R.O.I.“Hurdle Rates”
The franchisee should make areturn on the timethey invest
• No different than if they were to go out and get a job
• Salary should be “market rate ”
The franchisee should make areturn on their investment
• No different than if they invested in a stock
• Return should be commensurate with what they would make if they were to make an investment of similar risk
• Ability to sell back their investment at the end of the term Franchisees expect that they will need to build their business
• Will expect these returns in three years or less
R.O.I. at the unit level– our criteria
• 15% for Owner Operators
• 20% for Area Developers (who will support additional overhead)
Determining R.O.I. – Simplified Analysis
When to Franchise
Shouldn’t You Perfect Your Business First?
Perfecting the business
• If you have perfected your business, SELL IT!
• If you are standing still, someone is gaining
• McDonald’s in 1955
Quick vs. Slick
• If you are going head-to-head with more established competition and your business model is not highly differentiated – be sure to refine first
• More unique, the sooner you should franchise
• Risk: Someone with a camera and a notepad
• First mover advantage
• Who was the first . . . ?
Quick vs. Slick- You Are Not the Only One in the Game
How to Succeed as a Franchisor
What Is Needed to Franchise?
The Importance of Strategy
Strategic Planning
The Key to Success
• You are entering a new business.
• Goals drive your business.
• Start with support and cost structure.
• What do you need to do to help your franchisees succeed?
• Don’t rely on guesswork: The future of your business is at stake.
• Financial analysis is essential.
• Reverse engineer your success.
Goal Driven Modeling
Goal Sell for $20M in 5 Years
Average Selling 15 times EBIT
Year Five Earnings
$20M/15 or about $1.3M Average Royalties
$30,000 per franchise Average Net Royalties $10,000 per franchise
Need to sell
$1.3M/$10,000 = 130 Franchises
Goal Driven Planning
Goal Driven Planning
Hire Franchise Salespeople
Goal Driven Planning
Hire Field Reps
Goal Driven Planning
Hire Support Staff
Goal Driven Planning
The Flaw in Many Strategies
There are certainly a large number of neophyte franchisors who take a “Ready-Fire-Aim” approach
• Often rely on guesswork
• Or analysis of what comparable franchisors are offering to make major decisions
“Copying” is not a strategy – it is a recipe for disaster!
• Uniqueness is important to success, whether achieved through the business model, marketing, support, structure, fees, or marketing.
• Copying assumes that business economics are the same, support is the same, and that a new franchisor will simply differentiate themselves based on great franchise marketing
• But established franchisors often have many advantages not shared by newer franchisors
• So, the copycat strategy that is taken by many new franchisors can be responsible for their failure
Impact of the Right Royalty as an Example
Imagine the impact of a 1% mistake on your royalty
• If a single franchisee generates $500,000 in revenue
• 1% = $5,000 off the bottom line
• But franchisees will never tell you that they are paying too little and often inertia will keep the royalty where it is at fo r years
The Four Pillars of Quality Control
The Quality Control Trade-Off
• Many people think franchises have lower level of quality – just the opposite is true
• The Quality Trade-Off
• More difficult to control
• Higher Caliber
• More highly motivated
• Longer term
• Studies show franchisees outperform
• Anecdotal evidence
Quality Control
The Four Pillars of Quality
• Franchisee Selection
• Documentation & Training– the Tools
• Support
• Legal Documents and Compliance
The Roles of Your Operations Manual
• Role as a sales tool
• Role as a training tool
• Role as a reference tool
• Role as in reducing liability
• Extension of the legal documents
The
Table of Contents is a Required Disclosure Item
Development of Best Practices Operations Manual
Discussions with Key Stakeholders
Review existing material, forms, & documentation Develop preliminary outline
Assign responsibility for content creation Identify Subject Matter Experts for gaps Interview Subject Matter Experts
Determine gaps in current documentation
Onsite observation of units & documentation
Resolve Best Practices Conflicts
Draft material to cover all identified gaps Edit all material into common style & “voice”
Revise first draft of Operations Manual based on client & legal input
Franchising and the Law
Legal Documents
The Federal Rule– FTC 436
Disclosure document with 23 items
Disclosure fourteen days prior to sale
Final Franchise Agreement seven days prior Financial Performance Representations
Consistency with Franchise Disclosure Document
Legal Documents
State Laws
State Regulations
14 registration states Regulate advertising
Business opportunity states Determining applicability (even definitions vary– NY)
Some remnants of the “Old FTC Rule” remain
Franchise Legislation Within the US 2025
Legend:
States having no franchise or filing requirements
States having franchise registration requirements
States where franchisors must file to comply with business opportunity laws
Notes:
• Within Indiana, Michigan and Wisconsin, registration is effective immediately upon the application being filed.
• Florida, Nebraska, Kentucky, Utah and Texas require a simple exemption filing. Once that is filed, a franchisor can begin to offer franchises.
• South Carolina provides an exemption if the franchisor has filed a State trademark registration.
• Connecticut, Maine, South Carolina and North Carolina provide an exemption if the franchisor has obtained a Federalionregistrat of its trademark
• Six States require registration of advertising prior to use. (CA, MD, MN, NY, ND, WA)
• New York, Oklahoma and Rhode Island require the FDD be provided to a prospective franchisee at the earlier of ( i) the 1st personal meeting held to discuss the franchise or (ii) 10 business days before any agreements are signed or any monies paid (including fully refundable deposits).
• Michigan and Oregon require the FDD be provided to a prospective franchisee 10 business days before any agreements are signedorany monies paid (including fully refundable deposits).
• Many states also have State Relationship Laws that impact issues such as franchise termination or non -renewal. Your franchise l egal counsel can advise you on relevant issues involving these states.
• Check with your franchise legal counsel for additional details and updates which are available.
Marketing Your Franchise
Marketing Planning
A Requisite for Rapid Growth
Start locally, then regionally
• Cluster support
• More effective franchise advertising
• Consumer advertising economies
• Brand building
• Buying economies
Don’t expand faster than your support capability
• Quality control is key
• Nothing sells franchises as well as happy and successful franchisees
• Three-hour drive time
The Franchise Sales Pipeline
Cost-Per-Sale Can Vary Widely
Need to track KPIs closely and compare to benchmarks
Franchise Marketing costs will vary based on your prospect
• Owner-operator vs. Area Developer vs, Area Rep
• Experience of the target candidate (narrow focus = lower CPS)
• Use of the broker channel
• Size of investment
• “Sizzle” of the concept
• Brand recognition of the franchisor
• Experience of the sales team
Knowledge of best practices and KPIs imperative
• Preliminary average for 2025 trending even higher –around $17,500
• Franchisors who are “on target” average about $7,500
• Low investment franchise average $8,000
• Investments over $1 million average over $20,000
• Less than 25 locations average $13,000
• Large brands average under $4,000
• Median broker sale is $27,000
Need an understanding of your position and strategy to establish an appropriate budget
Marketing Materials
Essential for Speed
Franchise marketing isvery differentfrom consumer marketing
The Five Sales:
• Go into business for yourself
• Franchising is the way to go
• Our industry is best
• Our company is best
• Now is the time
Franchise marketing is highly regulated
Tools:
• Your web page should be your first concern
• Anebrochureis essential for credibility – different message from web
• Video and other recent tools
Be sure to have your attorney and registration states review all materials
The Sales Process
Unique process unlike any sale
• Quit your job
• No more benefits, paid vacations, 401ks
• Put your trust in someone you have never before met
• To invest your life’s savings
• In a business in which you have no experience
• And to which they are making a “lifetime” commitment
Franchise Sales are Predictable
Stage 2: Qualify/Convert
PROSPECTS (100)
LEADS (1000)
Stage 3: Customer
CUSTOMERS (10)
Stage 1: Generate/Assign A good concept +The Right Message +Marketing Plan +Adequate marketing budget +Good sales technique
Older studies indicate the average new franchisor will sell:
• An average of 9, 11, and 13 franchises in their first three years
• Median sales of 4, 5, and 6 sales in their first three years = leads = meetings
The Franchise Sales Cycle
What happens in this step?
Franchisor’s objectives
Step 1
5-10 Minutes
Prequalification
Initial call with candidate
Brand overview Zoom call
Drive accurate lead capture
Lay out all steps in the process
Franchise business model
Brand history/strengths
Value proposition
Uncover objections
RFC review
Discussion of unit economics
Introduction of FDD
Territory check
Check in on process map
Review FDD items 6, 7, 12, 17, 19
Ensure candidate has a franchise attorney
Walk candidate through FDD disclosure steps
Review candidate’s questions on the FDD
Confirm pre-approval of funding
Uncover/resolve final objections or concerns the candidate has
Discuss validation as a next step
Discuss Discovery Day process
Candidate’s first exposure to the senior leadership team
Perspective on the brand and operations
Questions from candidate
Build credibility with the candidate
Gain initial feedback from franchisor senior team
Confirm they see a mutual fit
Candidate’s objectives
To understand who / why / where / when / $$ / what else / how
Understand “day in the life”
Determine if they see a fit based on their skillset
Understand the FDD and the nature of the relationship that would exist with Freeway
Ask any major remaining questions
Ask any questions on the FDD
Build a relationship with senior leadership
Ability to ask questions with the senior leadership team
Schedule Brand Overview
Send process overview
NDA (possibly)
Next steps / advance
Schedule Unit Economics Call
Candidate completes and submits the preliminary RFC form (i.e., spouse information, education, employment history, references, etc.)
Send e-brochure
Schedule FDD Review Call
Candidate receives FDD and signs receipt page
Candidate reviews FDD with legal and other advisors
Introduce candidate to lenders
Personality profile
Complete background checks
Senior Team Call
Request proof of funds
Complete final due diligence steps
Meet the Team Day
Invitation to Meet the Team Day
Send Meet the Team Day information packet
Invite the candidate’s spouse
Send Franchisee validation password
Franchisee validation calls
What happens in this step?
Franchisor’s objectives
Step 6
1.5 Days
Meet the Team Day
Evening dinner and full MTD Day to follow
Visit operating units
Senior team meetings
7
Decision
Candidate’s objectives
Final evaluation of the candidate
Secure the candidate’s final commitment to move forward
Follow-up with candidate to address any final questions
Final decision on award
Complete final due diligence
Senior team leadership meets to make final award decision
Award decision conveyed to candidate
Obtain final clarity and confirmation that the franchise opportunity is right for them
Ensure any final questions are answered by franchisor
Ask final questions following Meet the Team Day
Confirm intent to move forward
Next steps / advance
Final Decision Conveyed to Candidate after Meet the Team Day
Final committee review of the candidate
Decision to award or reject the candidate
Prepare Paperwork and Sign the Legal Documents
Confirm franchisee’s legal entity
Prepare and send execution-ready Franchise Agreement to candidate (7 day waiting period)
Provide wire instructions to the candidate
8
Agreement
Zoom call with the candidate to walk them through execution of the legal documents
Receive the franchise fee
Sign the Franchise Agreement and various exhibits
Discuss next steps in onboarding with the franchisee
Secure funds for the franchise fee
Wire the franchise fee
Sign the Franchise Agreement and various exhibits
Prepare for Onboarding
What Really Motivates Franchise Buyers?
Assume You Are Being Shopped
Looks at your competitors as well as your concept
30% will look at six or fewer
30% will look at 6- 12
30% will look at 12– 20
The Sales Process
• Be selective
• Hire the best you can afford
• Maintain personal involvement
• Let brand maintenance and the potential for franchisee success be your guideposts
• Train your sales staff
• Measure everything
• And, most of all, be sure a standard process is in place for handling each prospect
Flow of the Sales and Qualification Process
Done Right, It’s A Numbers Game
• If the concept does not work, do not franchise
• Use franchisee success as your capacitor of growth
• With those caveats, franchise sales are a natural result of a well executed sales and marketing strategy
• The number of franchises you sell will not be a result of “averages” but instead a result of marketing expenditures.
Putting the Program Together
In franchising, consulting fees can appear to vary widely. That is because firms often use thesame language to describe very different levels of work.
• The truth is that some consultants will develop everything you need without you ever having to lift a finger.
• Others provide tools and templates but expect you to do most of the work.
Essentially, there are two very different ways to franchise a business:
• Hire someone to build the program for you, with your involvement being focused on decisionmaking
• Buy tools and do some of the work yourself with our expert guidance at every step
Most firms only do one – We do both!
• We are best known as a premium provider, rating #1 every year
• But we have a program for people that prefer a collaborative approach that is more budget friendly
Benchmarking
Initial Planning Session
Strategic Planning & Gap Analysis
Financial Sensitivity Analysis
Disclosure Document
Franchise Agreement
State Registration Process
Operations Manual & Revisions
Training Program
Train-the-Trainer
Training Video Scripts
SkyManual Online Operations Manual
Research / Profiling / Brief
Franchise Marketing Plan
E-Brochure
Mini-Brochure
Website Development
Franchise Sales Video Script
Franchise Sales Visual Aids
Franchise Sales Training & Manual
Franchise Implementation Strategy
Field Consulting Manual
Implementation Consulting
Franchise Program forAggressive Growth
Approximate Development Activity Schedule
Franchise Program forModerate Growth
Approximate Development Activity Schedule
Benchmarking
Initial Planning Session
Strategic Planning & Gap Analysis
Financial Sensitivity Analysis
Disclosure Document
Franchise Agreement
State Registration Process
Operations Manual & Revisions
Research / Profiling / Brief
Franchise Marketing Plan
E-Brochure
Mini-Brochure
Website Development
Franchise Sales Training & Manual
Franchise Implementation Strategy
Implementation Consulting
Collaborative Franchise Program for Measured Growth Approximate Development Activity Schedule
Benchmarking
Initial Planning Session
Strategic and Structure Summary
Disclosure Document
Franchise Agreement
State Registration (if any)
Operations Manual Call and Draft
Client Input Review and Edit
Franchise Marketing Plan E-Brochure
Website Copy and Input
Franchise Sales Video
Franchise Sales Webinar/Presentation
Franchise Sales Training & Manual
Legal to sell in 36 non-registration states
Strategy
Outside Legal Counsel
Quality Control
Franchise Marketing
Sales & Implementation
TopFire Media (option)
FranDevCo (option)
Time can be two days to three months depending on the state
FranDevCo for Sales
Taking the Leap
A little fear is normal.
The Transition Is Usually Gradual
Costs
Consulting and legal costs vary based on franchise company’s situation:
• Desired speed of growth influences services needed
• Ability to do work internally
Do not go into franchising undercapitalized
• Legal fees: $15,000 to over $35,000
• Consulting and Development: $55,000 to $200,000
• Organizational expenses: $10,000 to $15,000
• Franchise Marketing: $8k - $15k per sale (six months)
• Personnel: varies widely
• Can bootstrap growth
• Can spend hundreds of thousands
Conclusion
• Franchising is a means of duplicating success, not creating success
• Thrives by creating win-win situations
• You must beselective
• Franchising is a new and different business
• Is not the right solution for every business
• Provides one of the most powerful business expansion models ever developed
• Determine if your business is, in fact, franchisable (or if it can be expanded through any third -party distribution)
• Determine if third-party distribution channels are the best means of expanding your business
• Gain an understanding of what is involved in franchising, licensing, etc.
• Understand various cost options (and combinations of options) and how they can be adjusted to meet your growth goals
• Please consider our Analysts to be resources to you
