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Franchise Sales While Managing the Franchise State Registration Requirements

Franchise Sales While Managing the Franchise State Registration Requirements 

Franchise development is a highly regulated market segment of business and requires careful management to offer franchises appropriately and within the guidelines of each state’s franchise rules and regulations.  It is important to first understand why and what the franchise regulations are meant to do and then the process of adhering to franchise registration requirements makes more sense. 

The first item to know and understand is that there are two levels of compliance, the first is drawn from the Federal Trade Commission and was derived from FTC Rule 436 which originated in the 1970’s.  The FTC Franchise guidelines were meant to protect the franchise buyer from unruly franchise sales people who might tell a buyer anything in order in order to get the sale.  The Federal Trade Commission set out to create a franchise marketplace where the buyer had the opportunity to full access to information related to the franchise seller and the business they were investing in and therefore could make a better informed decision related to the franchise purchase.  Out of this legislation came the responsibility to create a Franchise Disclosure Document, originally referred to as a Uniform Franchise Offering Circular.  In 2008, the guidelines were drastically overhauled to bring the rules up to modern day practices and allow for more current business practices, they were referred to as the NASAA Franchise Registration and Disclosure Guidelines.

The Franchise Disclosure Document is a lengthy document which offers the prospective franchisee with an enormous amount of detail.  The document contains 23 items providing information covering a wide range of topics.   Item 1 discloses the companies involved in the franchise entity, Affiliates, Parent Companies and other organizations which have something to do with the franchise offering.  Item 2 offers information on the management team, bios, background and work experience for each of the management team members is presented.  Key elements of the disclosure include whether any of the management team or entities involved in the franchise have filed for bankruptcy or had litigation related to securities or franchising in the past.  Item 6 provides the franchise buyer with a clear picture as to what all of the related fees are in the franchise model and Item 7 clearly depicts a low and high range of the investment to open the franchised business – including working capital needed to manage the business to positive cash flow based on the affiliate’s experience.  The Franchise Disclosure Document is meant to provide the franchisee with enough information where they could make a qualified decision as to whether they should invest in the franchise. 

The FTC guidelines then go into detail related to how the franchise may be presented and what needs to happen to appropriately present the franchise opportunity.  First and foremost, the document needs to be drafted according to the specific NASAA Guidelines in order to present the franchise model.  Secondly, the FDD must be presented to the buyer at the time of a serious business discussion taking place during the franchise sales process and the buyer may not execute the Franchise Agreement until they have held the disclosure document for a minimum of 14 business days or 16 calendar days.

The Second level of franchise compliance is managed by the States.  There are 9 filing or business opportunity states and 14 franchise registration states which require acceptance and approval prior to your being able to offer a franchise in that state for sale.  The remaining 27 states follow the FTC guidelines and do not require registration to offer the franchise in that state.  With the internet and a wide-reaching marketing platform in today’s franchise market, all ads should contain disclaimers mentioning that some states require registration and that the ad contained does not constitute an offer to sell the franchise and that only the presentation of a Franchise Disclosure Document would be a true offering.  The franchise registration process is overseen by different governing bodies for each state, New York is the New York Department of Law, California is the Department of Business Oversight and Maryland is the Office of the Attorney General.  The states have unique processes and fees that range from $250 to $750 for annual registrations, again, the focus here is to protect the buyer by reviewing and approving the franchise offering. 

The Franchise legal and registration process requires capable legal counsel and strategic oversight to help maintain good standing with the states and FTC.  Particularly as a new franchisor, it is easy to sell ahead of yourself from a legal standpoint, by managing this process carefully, you can ensure a long-term growth strategy through solid franchise documentation.   

 

For more information on Franchise Registration processes, contact us:

Info@FranchiseMarketingSystems.com

 

The Importance of Franchise Sales Knowledge for Franchisors

Franchise Sales

Harry Truman said: “The Buck Stops Here”.  In franchising the: “Buck Starts Here” and that’s having a thorough and complete understanding of the sales process.  Harry was right and franchisors need to take heed to his words.   If a franchisor wants to expand through franchising, he has to accept the full responsibility of the success of the sales effort.

Franchise Sales are very repeatable sale, and have very distinctive stages.   While there are lots of skills, and tasks needed to complete a deal, it’s important to understand the sales stages.

It is important to know the stages of the sales:

  • Sharing the process with you candidate is vital and show competency of the franchisor
  • Setting the expectation of the sales/buying process helps candidate understand his requirement and commitment needed.
  • Be aware of every stage with every candidate.
  • Understand all steps need to be completed.
  • The only two stages that need to take place in the exact order of the franchise signing will be Qualification and Grand Opening.
  • Stage do not always have to be completed in the same order- but they must be completed
  • If a stage is missed, the sales team needs to get it completed
  • Understand that to move a deal forward you have to know next stage

All the great franchises have a GREAT franchisor that can sell.  Whether a franchisor is driving an internal sales team, using outsourced sales or a broker network, it is important that the franchisor needs to direct the effort and be accountable for results.

Take the time to learn about franchises sales.  All great companies are lead by a Sales Leaders, as a matter of fact 95% of the Fortune 500 are led by a strong Sales Leader.   If you are not a great salesman, you can direct the sales.  Understanding sales can help you acquire talent and skills.

 

If you want “Bucks” you need to sell!

How to Franchise:  Managing the Franchise Development Process

When you take your business into the franchise market, there are a multitude of responsibilities, requirements and strategic initiatives that must be addressed in order to make this transition work.  One of the key elements of a successful franchise expansion model is understanding the franchise marketing and franchise sales process that will work for you and your business model.

It is important to do a self-evaluation as a business owner and soon to be franchisor, how good of a salesperson are you?  As a new franchisor, even with the support of a franchise development team and franchise brokers, you will still be a key element of the franchise sales process.  The franchisee ultimately buys into a franchise system because they believe in and connect with the owner of the company.  Particularly with a new franchisor, the owner’s involvement in the franchise sales process is critical.  So if you take a look in the mirror and decide that you aren’t the right person for the job, then it might be an opportunity to bring in a franchise development manager.

Then it’s time to consider franchise marketing and lead generation.  The franchise sales process requires a strong and consistent inbound marketing effort in order to generate franchise sales.  Luckily, there are countless ways to generate franchise leads and get your brand out in front of potential investors. It starts with the Internet and utilizing franchise portals or franchise lead directories, these are simple and easy ways to generate franchise leads quickly for a brand.  In most cases these leads are looking at a variety of brands at one time, so the lead quality isn’t the greatest, but you will get consistent lead flow and candidates from these sites.  You then need to consider driving traffic to your corporate site through SEO, Pay Per Click and direct marketing methods, this can be more expensive, time consuming and long-term, but worth the effort to build traffic for your specific franchise.  Franchise Public Relations work can be extremely effective to find franchise buyers through building your brand awareness through news, articles and other PR sources.  In addition there are countless franchise tradeshows in virtually every market across the United States.  The key is always lead volume….getting enough candidates to speak with to find the right buyer for your franchise model.  Generally it requires about 150 leads per franchise sale.

Once you have your marketing process defined, it’s time to get a good franchise sales process in place.  A solid franchise sales process should be enticing to the buyer to get into the sales funnel and also one that qualifies the buyer carefully to make sure that it will be a good match.  You should have a franchise CRM in place to manage the leads and be able to report on leads as to where they are in the buying process.  There are countless, affordable franchise CRM’s on the market.  A franchisor should have a caller or someone who is tasked with tracking down the candidates and doing the initial calls to get people engaged in the sales process.  Good franchise sales people are great at developing activity and making a high volume of calls each day.  Email marketing, lead nurturing programs and other sales techniques can supplement calling.  Once you get franchise candidates deeper into the sales process, you will want to invite them to a discovery day to experience the franchise model in person.  Here is where you as the owner, or your Franchise Development Manager needs to shine and really connect with the buyer, it is the point in the process where the actual sale takes place.

Many different businesses have successfully utilized franchising as a growth mechanism, it can be done successfully with different personality types, industry segments and business models.  The key is to have a good understanding as to what is required to make this model work and then plan appropriately.

 

For more information on how to franchise your business, contact Christopher Conner:

Chris.Conner@FMSFranchise.com