Franchise Registration States and State Franchise Laws – part I

As start up franchise business owner you are probably already very well aware of your state franchising laws. On the other hand, if you are still working on your business and marketing strategy, and you are planning to expand nationwide, you will need to take into consideration the franchise laws in all of the states where you plan to expand. Moreover some states require that you register there even if you only plan to advertise your franchise on their territory.

There are 14 franchise registration states in The United States. They all have different franchise regulations. We have listed some of the key points in each state franchise laws and regulations. However it is strongly recommended that you consult a franchise attorney experienced in franchise law and registration procedures in each of the states where you plan to offer or sell franchise units.

US state franchise laws.

• California. According to California Franchise Investment Law and California Franchise Relations Act a franchise is the agreement between two parties, where one party gives the right to the other to use their trade name in exchange of a fee. In order to offer and sell franchises, you need to register your franchise. Visit the California Department of Corporations. There you can obtain all the legal forms and documents required. You will also need to pay a registration fee. You also need to know that every offer and sale you make must be registered with the Commissioner of Corporations. This is done with a Uniform Franchise registration Application. There are exemptions of this rule so you need to check with a lawyer about the specifics. If your business is dealing with automobiles, fuel, construction and beer, you will also need to comply with more industry specific regulations.
• Hawaii. Registration of franchises in the state of Hawaii is done through the Department of Commerce and Consumer Affairs. Similar to several other states, you will not be able to offer or sell franchises until you are registered at the state and until your disclosure agreement is approved.
• Illinois. As with the states discussed so far, offering and selling franchise units before you have registered your franchise business and have your disclosure documents approved is considered law offense. Franchise registration is done at Illinois Attorney’s General. According to state’s franchise regulations, franchise anniversary dates automatically expire 120 days after the end of the financial year. Moreover you no longer need to register your franchise brokers as you needed to do just several months ago. The registration of large franchises ($5,000,000 and $15,000,000) are processed faster and there is a $500 registration fee. Very large franchise (above 15 million) do not need to register, but they do need to provide their disclosure documents to prospective franchisees prior to signing the agreement.

How to Market Your Franchise Business

A franchise business cannot become successful or grow rapidly unless it is marketed well. No matter how good your products or services are, no matter how good operational systems you have in place, no matter how devoted your management team is, you will never succeed if you do not employ a good marketing strategy.

There are many ways to market a franchise business. The strategy that you are going to implement should suit your business type, match your goals and reach your prospective franchisees. Here are some tips that can help you reach these objectives.

Franchise marketing tips.

• Determine who your prospective franchisees are. Similar to determining who the prospective buyers of a product or a service are, you need to determine who is likely to be interested in your franchise. There are many different types of franchise buyers and you cannot target them all. Segmenting the market and finding your marketing niche will help you a lot when you start preparing your marketing plan. Do this well in advance so that you can be 100% ready when you launch your franchise.

• Work on your credibility. Regardless of how good your marketing strategy is, it will not bring you a lot of franchisees if you do not manage to make your business credible. There are many factors influencing business credibility – how long you have been into business, how large your company is, what the quality of your products or services is, do you have superb customer service practice and so on. Make sure these are reflected in every single part of your marketing strategy and advertising materials.

• Do not underestimate the power of advertising. There are many different channels of advertising. You can promote your franchise by distributing brochures, attending industry exhibitions, posting magazine and newspaper ads, creating advertising for television and radio, advertise online. You should not ignore even a single marketing channel. Of course this doesn’t mean that you should use all possible advertising channels or at least not at the same time. Which marketing strategy you will employ will depend on your prospective franchisees, your goals and your marketing budget. You should also research how your direct competitors are advertising and see if you can do better.

• Internet. Internet is presenting franchisors with unlimited marketing opportunities, often costing just a fraction of traditional advertising. Put some effort into exploring these opportunities – create a nice company websites, contribute content to industry related web portals or advertise online.

• Word of mouth. Definitely one of the most powerful marketing tools is word of mouth. A happy and successful franchisee is worth thousands of dollars into advertising. Try to keep positive and good relationship with your unit owners and you will quickly see a lot of applications for new franchises. You should also be able to supervise closely how your franchisees are running their units to make sure each one is keeping up to the standards of your name.

Keeping Franchisees Happy – the Secret for a Successful Franchise Business

Every successful franchise business stands on a successful relation between the franchisor and the franchisees. This relationship is largely dependant on the way the franchisor has set their business but it is also relies on the communication between the parties involved.

Positive and constructive communication is one of the fundamentals for any business partnership. Unfortunately in many occasions franchisors and franchisees alike fail to keep a nice and fruitful communication channels. After this happens it is a matter of time when problems will start to arise. Strangely enough, a large amount of arguments and difficulties may be easily predicted and overcomes before they have even happened. All thanks to communication.

How to overcome this, at a first glance, easy challenge? The best way to overcome them is by seeking the roots of the problems. Here are some tips that may help you.

Franchise – franchisee relationship communication.

• Do not let yourself down the slippery road. Many franchise owners fail to notice problems until it is too late. And even than, they fail to recognize the real reason for the troubles they are experiencing with a certain franchisee. The first call to action is to get in touch with their legal advisor and look at the franchise agreement about ways to terminate the contract. And let’s face it – this is not a positive turn around for neither of the sides involved in the process.

• Step into your franchisees shoes. Many of the misunderstandings arising between franchisors and franchisees are actually “provoked” by franchisors themselves. A common reasons for conflicts is when the franchisee thinks the franchisor should do something but the franchisor doesn’t The actual “doing” may be just about anything – from increasing advertising to reducing the royalties on some products. Whatever the case you, as a franchisor should be proactive. Keep the communication line open, detect problems early note and real. It doesn’t mean you need to agree with everything your franchisees want, but at least you will be able to address the issues early enough and settle one way or another.

• Money troubles. Definitely the most frequent arguments between franchisees and franchisors are related to money. When a franchisee doesn’t seem to take off to start making money or when a franchisee stops to be profitable, franchisors simply pick up the phone and call their layers. Of course it would be quite unpopular decision to keep an unprofitable franchisee however you may want to look for the reasons why this is happening. Better yet, you may want to be able to detect that money problems are raising on the horizon for any of your franchisees. Saving a franchise unit, after all, means more profits for you.

• The flat line. There are cases when, whatever you do, no matter how proactive you were or how good the communication was between your franchisee and you, the business relationship has to come to an end. Make sure you are able to recognize these cases and close the unit down with minimum drama.

How to Prepare a Franchise Operating Manual

The franchise operating manual is the heart of any successful franchise business. This is one of the fundamental documents that blueprints the way every single operation in the franchise is executed. This manual should be prepared before your franchise business launches and can be refined as many times as needed along the way.

Writing a good franchise operation manual can be a challenging task. There are a lot of potential difficulties you may face especially if this is your first time writing similar documents. Here are a few tips that should help you get started.

How to prepare a good franchise operating manual:

• Keep in mind that the manual you are writing is like the Bible for your franchise business – it should include a detailed description of all good practices as well as information about the way every single aspect of the business operations. Make sure you have included all important details n the manual.
• Use simple, understandable language. This will ensure that the franchisees can understand what is written in the franchise operating manual.
  Write the manual in a way that you can edit and build upon later on. This is one of the documents that should change as the business grows and as business environment changes.
• If you are planning to grow internationally, you should take into account any local differences. You may need to prepare a different franchise operating manual for each one of the countries where you intend to grow.
• Get the manual reviewed by a qualified attorney or other legal consultant specializing in franchise issues. Once again, if you plan to expand internationally, make sure your overseas manuals are compliant with local laws and regulations.

After we have covered the main points that you need to keep in mind, let’s see which the main parts of any franchise operating manual are.

The nondisclosure agreement (NDA). This is one of the backbones of your franchise business. The agreement basically governs how confidential material, knowledge and information should be handled by the franchisees.

Timetable. The timetable is another fundamental part of your franchise operating manual. This is the section that explains the stages before a franchisee opens their business. For example this section may states what should happen 2 months before opening, 1 month before opening, 3 weeks before opening and so on. There is no standard way of compiling this section and you should tailor it according your type of business and requirements.

Staff policies. This section describes the way the franchisee will work – it covers everything from the way the business environment should look to working times and hygiene requirements. The office equipment and inventory can be included in this part of the franchise operating manual or in a stand alone section.

Business processes. This section of the franchise operating manual governs the way the business is executed. Working times, housekeeping, duties of the staff, inventory and equipment management, security and safety procedures are all described in this section.

Franchise Offering Document System

So you have sold your first franchise and are hungry to sell more. Better slow down, this is the number one fault of most franchisors is to start taking on more franchisees than they can handle. You need to ensure a controlled growth and only take on those franchisees that are a definite fit rather than the one who can simply afford the fees.

Now, getting all of this down on paper is the other portion of the business some don’t recognize. Like most things, the excitement is 5% of the sale, the other 95% is the paperwork involved. A Franchise Document System, or a Franchise Operations Manual, is easy enough to create and consists primarily of an exhaustive index of material numbered to what each form, policy or contract does. A franchise system may have more than a dozen policies, a dozen or more forms and quite a few booklets on how everything should be run. Take a look at our Operations Manual for an example of a professionally made franchise document system.

Simplify your forms and policies by giving each of them a number. You can start with the employee policies labeling them as such: EMP-1001 – So this would be Employee Form 1001 – Vacation Request Form
Having all of this in order save a lot of time, especially when a franchisee requests this form if they have lost it or need more copies. These forms, policies, procedures and contracts should also be date stamped so you know the last time they were edited.

Now that you have your paperwork in order, your franchise locations will be setup in accordance with the forms they need. There may be some states that only allow certain stipulations in contracts and you may only have a handful or more franchisees in that state. The simplicity of a Document System will ensure that all of your paperwork is in pristine order and can be called upon with the click of a mouse.

Your First Franchise

The very first franchise sale is one of the most important as it details how the rest will need to be performed or if changes need to be made. The learning experience on this one act alone will clearly show if the bond between franchisee and franchisor will be strong. You will both have a learning curve and need to adjust accordingly.

As the first franchisee you have an excellent opportunity to be in on the “ground floor” or “grassroots” of the franchise organization. This often entitles you to be consulted about many decisions on the direction of the organization and any time that needs a re-write. This is your time to shine as your ideas will be put into use for the next new franchisee. So if you want to make an impact into your new franchise business this is the best way to do so – be the first!

As for the franchisor this first franchisee is your gateway to branding your product or service and getting it some exposure that it needs. Helping this first franchisee is of the utmost importance and ensuring their success will only add to your growing list of profitable organizations that can be shown within your Franchise Disclosure. The FDD will prove to interested parties how well your franchise system is working and will often lead to faster closings.

Look to the people you already have working for you to be your first franchisees. These individuals already know the layout of the business and are able to reproduce it without you being there. These managers and employees will also be your trainers to the new franchisee so be sure they are kept up to speed on paperwork as outlined in your FDD.

Changing or altering your FDD in any way will need to be done so electronically. Quite often the rules will change dependant upon the sate with which you will sell franchises. Having these digitally stored is franchising magic at its best – the ability to reproduce a document and send it electronically in seconds will ensure your franchisee sees you are technically savvy and able to quickly produce the paperwork needed.

Marketing Your Franchise Based System

Until you have sold your first franchise you won’t know the cause and effect of your marketing efforts. As soon as the first franchise is sold and all the paperwork has been signed and the check is in your hand, business starts to make its mark and rear its capitalist head. Funny statement, but nonetheless true.
Think of the process by which you made that first franchise sale. You began with some advertising either by print, media or word of mouth. Still the message you had something for sale made its way to the right person. Often the first buyer is an employee of your newly franchised business. Now the fun begins. With the sale come the after-effects of making sure it is flowing in the proper direction – towards profit.
With franchising, most franchisors won’t see a return until they have sold a number of franchises and this takes some advertising. When it comes to advertising nothing is more effective than doing so in a large enough group. With 10 or more franchises comes a lower ROI when it comes to advertising dollars. If all 10 franchises were putting in a fair portion of advertising costs it then lowers the cost for all members yet increases the market share.

All franchises should have some form of Advertising Agreement and are typically the rules by which to follow when forming an advertising coalition or small media group between franchisees. You as the franchisor grant the right to the franchisees to form an advertising group and use their advertising dollars as they see fit. All of this and more should be in that contract and will often determine final say on verbiage and design. Check your marketing contract contained within your FDD, it speaks volumes on how a franchisor operates and control paperwork.

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