Business owners looking for creative ways to grow and expand sometimes turn to franchising in order to accomplish their goals. Franchising occurs when the original owner of a business sells territorial rights to run independently-owned versions of the existing business. The independent business owners are franchisees. While the concept is not for everybody, there are certainly advantages to this business model.
Best practices to consider prior to franchising your business include the following:
Answering the Following Questions
Is my business even franchise-able? This is very important as not every business is. Is there even a need for my business concept in other geographic locations? Is my business model easily teachable to potential franchisees? Am I comfortable in making the transition from owner-operator to franchisor?
Consult a Franchise Attorney
The sale of franchises can be a legally complex process at both the federal and state levels. The laws are often not uniform and can vary from state to state. Prior to selling any franchises, a franchisor must file a franchise disclosure document (FDD) with the Federal Trade Commission (FTC). The FDD is discloses extensive information about the franchisor and is intended to provide the potential franchisee with information needed to make an informed decision. A franchise attorney will be a valued resource in your franchising journey. They will assist in the preparation and filing of the FDD.
Consult a Certified Public Accountant
With limited exceptions, a business looking to franchise will need to include financial statements that have been audited by an independent CPA. Audited financial statements are required to be included within the FDD prior to filing, with the failure to do so leading to costly delays and fines. Like a franchise attorney, a CPA will be a great resource as you begin your franchising process. Along with performing the required audit necessary for filing of the FDD, a CPA can also discuss the various tax benefits of the franchising concept and can serve as a trusted advisor on a range of topics including tax planning, business valuation and M&A strategies.
Now that you know the resources available to you, it’s time to begin your journey of growing your business via franchising. Contact us to learn more and to speak to a certified public accountant at LBA Haynes Strand!