Is it a Franchise or a Business Opportunity?
Here’s my question.
I’ve built a nice business from the ground up and I either want to franchise it or sell it as a business opportunity. For openers, I don’t know what is really meant by a franchise. I do mobile car and truck detailing. I have two units on the road and have employees. It’s not a complex business, but it requires commitment to show up for appointments and actually do the job right. What I don’t want to do is sell the opportunity to someone who gives me headaches by not doing the job. Can I protect myself in some way?
The ‘what is a franchise’ question should be asked more often
First, congratulations on founding a successful business. You happen to be among a very, very small percentage of people who accomplish that feat. Your questions and your concerns are extremely valid and now is the time to address them. Do NOT sell your concept to others before answering these concerns. If you get ahead of yourself, chances are you’ll be sorry. You’ve created a very valuable asset in your idea and your success. Don’t put it at risk by moving forward without great thought and study.
In 1979 the Federal Trade Commission published the FRANCHISE RULE. It legally defined what a franchise is. We’ll get to that in a second. Of equal if not greater significance, the franchise rule resulted in a ‘Uniform Franchise Offering Circular’ that, for the first time, provided buyers with valuable information about the franchise. That information on the franchise became the basis for pre-purchase franchise due diligence. Not only is due diligence an essential ingredient in the franchise buying process. It’s an opportunity for the seller to shape their offering in an understandable format while meeting federal guidelines. The original ‘offering circular’ is now a Franchise Disclosure Document (FDD).
What does the Franchise Rule mean to you, the seller?
There are three elements that, if present, make a business opportunity a franchise. Eliminate one of the elements and the opportunity may take on a different name. With the franchise label you will have certain protections. Namely, the kind of protection that you described above regarding how you want your mobile detailing business to be operated.
Now the three elements. Simply put: the franchisee pays an initial and/or ongoing fee to the franchisor; the franchisee uses the franchisor’s trademarks or service marks – it’s logo/s; and, the franchisor exercises significant control over the the franchised business. (In other words, the franchisor obligates the franchisee contractually to certain standards.)
The reality of deciding to franchise
The practical aspects of franchising are, frankly, not as simple as the elements that label it a franchise. And, it’s the prospective franchisor that has to decide whether or not the time and financial investment is worth it. Just to document your offering will take substantial time by a franchise attorney. And, beside the federal documents, many states have additional hurdles for franchisors. Then one must learn ‘how to franchise.’ It’s complicated, but manageable for the right person.
But most importantly, it’s about the control and commitment to excellence that you want. You want your child, your precious business, that you gave birth to and nurtured to success, to remain fit and strong. You want it to run according to your standards.
Bottom line, our advice is this. You really have two choices. You can own and operate all the additional units you’d like to establish in order to grow your business. Or, you can make the investment in sound franchise strategy and development and find others with whom to share your dreams.
Best wishes with whichever path you choose. You’re already a winner.