Selling Franchises
When you’re getting started in the franchise industry, selling franchises can be a daunting task, even when it seems like your brand should be good enough to sell itself.
New and emerging franchisors often wonder what it takes to sell franchises. Is it the franchise system itself, or are there other factors that can make a brand more attractive to buyers than its competitors? What qualities do buyers look for in a franchise? And, equally important, what qualities should franchisors look for in franchisees?
In this guide, we’ll explore the factors that can help boost your franchise sales – and help you become a better franchisor in the process, including:
- Leverage your value proposition to attract qualified buyers
- Be upfront about unit-level economics
- Be transparent about commitments
- Differentiate your franchise offering
- Be open to advice and change
- Address concerns before signing a franchise agreement
Learn more about the franchise sales discovery process and how to convert leads.
1. Leverage your value proposition to attract qualified buyers
The right franchisees can make or break a franchise system – especially when you’re just getting started. Underperforming franchisees often require more support than stronger ones and tend to generate lower profits for the franchise system overall. When it comes to choosing the right franchisees for your franchise system, make sure prospective buyers are properly capitalized and their goals and values are aligned with yours.
A clear, well-written value proposition can help attract the right candidates to your brand. To ensure the value of your offering is clear, consider addressing the following questions on your website and in your other franchise sales marketing materials:
How do franchisees benefit? What are the key features and support offered by your franchise system?
Why you, why now? What does your brand sell or do, and why are your products or services best suited for your target buyer at this particular moment?
How do you compare to the competition? Which factors set your brand apart from similar franchises on the market?
Do your existing franchisees validate the system? What are your current franchisees saying about their experiences with your franchise system?
Although it’s recommended that new franchisors recruit their first few franchisees organically, having a strong value proposition can also help build trust with franchise brokers – something that can get your offering in front of a larger number of qualified prospects in the future.
2. Be upfront about unit-level economics
When it comes to attracting the right buyers to your franchise system, it’s important to be honest with candidates about your brand’s unit economics. By providing information about your franchise system’s financial performance representations, you can ensure that prospective buyers are properly capitalized and understand what they’re getting into – as well as what they can expect to gain – before buying a franchise.
To make sure you’re providing the right information to prospective franchisees, it’s important to work with an experienced franchise attorney when drafting your Franchise Disclosure Document (FDD). The FDD is a legal document all franchisors are required to provide to prospective franchisees before offering or selling a franchise. By knowing what prospective buyers and franchise brokers look for when evaluating franchisor financials in Item 19, you can ensure that you’re competitively positioning your FDD.
Generally, franchisee candidates and brokers will look for the following when evaluating a franchisor’s Item 19 disclosures:
A track record of success. This can include successful profit and loss statements or other unit-level economics demonstrating strong financial performance over time.
Good timing. Smart franchise buyers and brokers understand that franchising isn’t for everyone. By disclosing financial information that proves your brand is ready to franchise, you can make your system more attractive to potential buyers.
Data that tells a story. The financial performance data in your Item 19 disclosures should come together to tell the story of a franchise system that’s structured for success, including properly identified revenue streams and service categories.
Validation. Item 19 data should demonstrate your commitment to supporting franchisees in their success as business owners.
Accountability. Make sure to highlight the fact that, as a franchisor, you meet deadlines, take initiative and are accountable for any missteps.
By including honest financial information in Item 19 of your FDD, you can ensure prospective buyers have a clear picture of your franchise system’s financial performance over time – and that they know what to expect as a franchisee before investing in your system.
To learn more about preparing Item 19 of your FDD, check out our Item 19: Financial Performance Representations Planning Guide.
3. Be transparent about commitments
Being honest and straightforward about commitments is critical to establishing an open, trusting relationship with prospective franchise buyers. As a franchisor, make sure prospective candidates what is required of them before investing in your franchise system:
Estimated initial investment. What are the startup and initial investment costs prospective franchisees should have in the bank to safely invest in your franchise offering?
Fees and royalties. What financial commitments are required to operate the franchise, both before and after it opens? Are there royalties, marketing costs or other recurring payments that franchisees must commit to pay over time?
Time commitments. How much time does running the franchise business require of franchisees?
Staffing. Will operating the franchise unit require hiring specific staff or employees to work in the business daily?
Other obligations. Are there any other specific obligations or legal requirements that franchisees will be expected to commit to after they purchase the franchise?
Although much of this information is disclosed in Items 5, 6, 7 and 9 of the FDD, it can be helpful to include it in your franchise sales marketing materials and sales website. By ensuring candidates are fully aware of the financial and time commitments required to operate their future business, you can make sure you’re selling franchises to buyers that are qualified, prepared and aligned with your goals as a franchisor.
4. Differentiate your franchise offering
Making sure prospective buyers and franchise brokers understand why your brand is unique in a crowded marketplace is critical for success in franchise sales. By telling a compelling brand story that clearly identifies who you are, what you do, and what sets your products or services apart from others, you can give your franchise a competitive advantage.
In addition to telling a great brand story, it’s important to highlight the key benefits you offer to franchisees. Although this information is usually disclosed to franchisees in Item 11 of the FDD, it can be helpful to include it on your sales website and other marketing materials.
While details will vary depending on your franchise system, consider including the following information about your franchise on your sales website:
A compelling brand story and website. What’s unique about your business? Having a great story can help outmaneuver the competition and position your brand for success in a competitive industry – and design your website to complement it.
Franchisee training. What training will you provide to franchisees after the franchise agreement is signed to help set them up for success as franchise owners before their business opens?
Technology and equipment. What technology, software, equipment and tech support will you provide to franchisees to streamline their daily business operations and help them run smoothly and efficiently?
Ongoing support and other benefits. As a franchisor, what ongoing support or assistance will you provide to franchisees to make sure they’re continually set up for success as their business grows over time?
By making sure prospective buyers and brokers understand your brand’s story and value – including the services and products you offer and how franchisees can benefit from investing in your brand – you can attract candidates who are the right fit for your business.
To learn more about developing a great brand story, check out our Brand Story Masterclass.
5. Be open to advice and change
As a new or emerging franchisor, being open to transformation as you learn and grow in the industry is critical to your long-term success and sustainability. Some key tips for franchisors as they grow in the industry include:
Know your strengths and weaknesses. Be aware of strengths and weaknesses as your business grows and matures over time.
Seek expert advice. To maintain a competitive advantage and make wise business decisions, seek advice from experienced mentors and experts.
Make appropriate changes. Adapt to the changing needs of your franchisees and franchise system. Don’t be afraid to follow expert recommendations and make changes when necessary.
By working with mentors and franchise industry experts, you can ensure that your franchise system will be able to adapt to challenges you might face as an emerging entrepreneur.
6. Address concerns before signing a franchise agreement
How you respond to franchise sales inquiries as a franchisor is just as important as your franchise sales process itself. Because of that, having a process in place to present information to prospective buyers and address candidates’ questions and concerns is critical. When developing a system for responding to sales inquiries, consider the following:
Have a plan. Design a uniform process for responding to every prospective franchisee candidate. This might include a preliminary call and sending marketing materials, cost validation, follow-up meetings and discovery days.
Address questions and counter-narratives. Make time to speak with prospective franchise owners about questions and concerns. Address counter-narratives and help candidates understand how you will help them solve labor problems, find contractors and fill needs to set them up for success.
Think about the needs of franchisees. Remember that selling franchises is about more than just closing the deal.
By making sure you have a consistent plan for responding to inquiries from prospective buyers and addressing their concerns as future business owners, you can build trust with candidates and brokers while setting yourself apart from the competition as a supportive franchisor with strong problem-solving capabilities.
Complying with franchise sales laws and regulations
Because the franchise industry is a highly regulated industry at the federal and local state levels, working with an experienced franchise attorney when developing your franchise sales process is critical for new and emerging franchisors.
Common legal issues to keep in mind as you develop your franchise sales process include, but are not limited to:
Disclosure and waiting periods. The federal Franchise Rule requires franchisors to disclose their FDD to franchisees no less than 14 calendar days before accepting a fee or signing a franchise agreement. An additional seven-day disclosure period applies to the disclosure of agreements related to the franchise sale.
FDD updates and renewals. Keeping your FDD and financial performance representations up-to-date is critical for franchise sales.
Misrepresentations. Representing your financial performance accurately to prospective franchise buyers isn’t just the right thing to do – it’s also legally mandated.
By ensuring that your new or emerging franchise system has a rock-solid legal foundation, you can set your brand up for success from the start – and make a positive impact on the lives of your future franchisees for years to come.
If you’re ready to start selling franchises, we’re here to help. Contact us to learn about the services we offer franchisors at every stage of their journey.
