Risks and Rewards of Franchising a Business

You can achieve significant business growth and expansion when you expand your operations through franchising. As with any significant decision, you should consider the risks and rewards of franchising a business before you take that step.

The franchise attorneys at Franchise.Law can help you conduct a risk-reward analysis to ensure that franchising is right for you. Our attorneys advise businesses throughout the United States on all aspects of federal and multi-state franchise laws and regulations, as well as the benefits and drawbacks of operating in a highly regulated franchise environment.

What Rewards are Associated with Franchising a Business?

The rewards of franchising your business might convince you that the associated risks are manageable. Those rewards include:

• The potential for rapid growth and expansion of your business to new clients and customers, and into new territories
• The creation of multiple revenue streams, as you continue generating revenue from company-owned locations while earning royalties and franchise fees from franchisee payments
• The development of an aggregated marketing plan that covers broad geographic regions, with financial support from franchisees
• The enhancement of the inherent value of your trademarks and brand, which increases with increased use and exposure
• The delegation of managing the day-to-day operations of individual locations to motivated and engaged hands-on owners who want to operate a successful business

These benefits will be more readily realized when you retain help and representation from a qualified legal team, such as the lawyers at Franchise.Law who can guide you through the process of becoming a franchisor.

What Risks Are Associated with Franchising a Business?

The rewards of becoming a franchisor may be substantial, but you will need to devote resources and energy to manage the risks that come with it. Common risks include:

• Monitoring and managing stringent regulatory requirements, including the mandatory disclosure obligations of the Federal Trade Commission’s Franchise Rule and multiple state franchise laws
• Budgeting for significant initial costs to set up a franchisor status, and regular ongoing costs to market your operations, train and support franchisees, and develop new products and services to expand their offerings
• Managing the potential loss of control over your franchise business model by rogue franchisees who attempt to operate outside of franchise limitations, which can impair the value of your brand and its reputation
• Relying on franchises to generate revenue that provides a reasonable return on your investment into becoming a franchisor

Navigating these risks does not have to be overwhelming–we can help.

When Should a Business Evaluate Franchising Risks and Rewards?

Some businesses are formed with an intention of expanding through a franchising program, while others consider franchising only after they have established operations over a period of years. In either case, a business that is assessing franchising risks and rewards should focus on the following elements:

Documented Business Model

A business should have a model that can be clearly replicated across different territories.

Established Brand Identity

Your brand identity should foster recognition of your products and services, with assurances of consistent quality from every franchise that will offer those products and services.

Strong Legal Agreements and Licenses

Legal agreements and licenses should document the business model and operations, providing a solid foundation to prevent potential problems.

Many businesses have some components of these elements, but they may be scattered, making it difficult to get a clear picture of the overall risks and rewards. The lawyers at Franchise.Law can help you organize all of the documents and information.

Call Franchise.Law for an Assessment of the Potential Benefits and Risks of Franchising a Business

The franchise attorneys at Franchise.Law concentrate their practice on helping franchisors launch their operations in full compliance with federal and state regulations. Please call our office to schedule a consultation on how we can assist you in evaluating the risks and rewards of franchising a business.