Franchising vs. Licensing

So you have a successful business: it's growing quick, providing a unique service and bringing in tons of new customers. What to do? If you're providing a walk-in customer experience or a to-their-door service, expanding your single location won't net you the coverage you need. If you've got a product or a technology that's selling like hotcakes, what if you could sell your products not just to customers, but to other companies - or even as a company? Licensing your products or franchising your business might be right for you.

In 2010 the U.S. Census Bureau compiled their first report on franchises in the United States, using data from their 2007 census. Franchised businesses made up more than 10 percent of businesses, across almost 300 industries. This 10% of U.S. businesses accounted for $1.4 trillion dollars in revenue, with over $150 billion payroll distributed to almost 8 billion employees. Franchises are an inherent part of the fabric of the United States, with businesses stretching coast to coast.

Franchising Your Business

Before you even think about opening up that second location, you have to do a bit of soul searching, both in your company, and how you envision your franchise working.

Knowing Your Business Top to Bottom

First you have to know your business. This might sound rote, but you have to view your business through the eyes of a new owner. What are the procedures in your company? How are the products made? What equipment do you use, and can you get more of it? You need a plan of setting up (or constructing) a new building, and ones for how to decorate the interior to how to train the staff.

Is Your Business Franchisable?

After taking that long hard look at your company, you now have to decide is your business the type that can be franchised, and are you ready to be a franchisor? If your business would already have to compete with another franchise that provides the same service, are you ready for that competition?

Planning and Filing a Franchise

After you've decided to go ahead, the paperwork begins. Not only planning out your business, but also filing with the government. The Federal Trade Commission requires you to prepare a Franchise Disclosure Document (FDD) that outlines the franchises business, from industry to projected financial performance. You'll need to also work out legal contracts for your obligations to support the franchisee and the initial payments and royalties that are due to you as franchiser.

Another Option: Licensing Agreements

If the above steps seem like too much, or after considering you find your business isn't quite ready, there is another option, especially if you have people interested in selling your products or using your technology. Instead of a full franchisor/franchisee relationship, you can look at making a licensing agreement. This is an agreement between yourself and another company or individual to license them to use or manufacture technologies or products that your company owns in exchange for payments and royalties on sales.

A Licensing Scenario

For example a sports team might enter into an agreement with a clothing manufacture to use their logo on a line of sports gear. Commonly such agreements have an initial payment for the license and guaranteed minimum sales, a royalty percentage, along with a length for the contract, rights to renewal, and the licenser's right to oversee quality control. For many companies this is a win-win that allows both groups to make money, and requires less overhead than a full franchising conversion.

Which of these two options is right for you? It depends a lot on your business and the services you provide. If you're looking for expert help, contact George & Company. We can help you look at franchising your business and appraise it to help you work up licensing agreements. We'll help you to expand your business.