FranchiseConsulting.Net

FREQUENTLY ASKED QUESTIONS

Q. What do I need to begin selling franchises?

 

A. There are four required items that must be developed to enable you to sell franchises;

 

1.  Franchise Disclosure Document and Franchise Agreement with required Exhibits.

 

2.  Franchisor Operating Manuals – Operations, Marketing, Site Selection (where applicable).

 

3.  Franchise Sales Website Content.

 

4.  New Franchisor Training

 

In addition, you are required to include audited corporate financial statements in the FDD within 90 days of the end of your first fiscal year. We do not offer auditing services but we can advise you on the federal and state requirements.

Q. Once these items are completed can I start selling franchises?

 

A.Yes and no. Franchising is governed by the Federal Trade Commission. The FTC has established federal guidelines (the "Rule") that a franchisor must follow when offering franchises. Many states have adopted the FTC guidelines. However, there are 14 states that have enacted additional requirements, specific to that state, that also must be followed in order to offer franchises within those states. These 14 states are commonly referred to as "registration states". In addition, all registration states require that the FDD be submitted, with other required documents, for their review and approval. Some "non-registration" states require that they be notified, using a state specific form, that you will be offering franchises within the state. There is an application fee that must accompany the application. The application fees range from $150 - $600.


 

Q. How long does all of this take?

 

A.Once you retain our services, it will take approximately 45-60 days for us to develop the four required items. (Non-registration states)

Q. Do you offer ongoing training and support services?

 

A. Yes. We will discuss your needs and goals and formulate short and long term strategies for your company.

Q. How much should I charge for a Franchise Fee?

 

A. When determining the amount to charge as a franchise fee you should consider the cost of developing the franchise program (legal, consulting fees, accounting, marketing, advertising) and the cost of providing start-up training and support for each franchisee. The return-on-investment for establishing the franchise program should be spread out over a number of new franchises. If you attempt to recover your investment to quickly your franchise fee will be well above the national averages of $20,000 - $30,000.

Q.   How do I determine how much to charge for ongoing royalties? What are the national averages?

 

A. The amount you charge for ongoing royalties will be determined by the complexity of your operation, and your corporate profit requirements. Complex operations will require more ongoing in-field and corporate support. The national averages are between 5-8% of gross sales.

Q. When are royalties generally due from franchisees?

 

A. Generally royalties are paid to the franchisor every 30 days. I would recommend a weekly payment schedule for two reasons;

 

1. It provides you better, much needed, cash flow for the new franchise business;

 

2. It provides an excellent way to monitor your franchisees sales and will "red-flag" any problems with declining sales. This allows you to react quickly to determine the best way to reverse the trend.

 

 

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