Franchising Your Business: Four Initial Considerations
Business owners who are interested in franchising their business will likely reach out to a franchise attorney to learn about the legal aspects of franchising. But how would a business owner know if his or her business is ready to franchise? A good first step is having a successful, replicable business model. The most common types of businesses that are franchised include service companies and restaurants, although just about any type of business can be franchised. For the business owner who is interested in franchising her business, here are four things to consider:
When you first meet with a franchise attorney to discuss franchising your business, one of the first things he or she should ask is whether or not your company has a federally registered trademark or has applied for a trademark. The reason why this is important in the world of franchising is because franchisees want to know that the brand they are purchasing will not be used by anyone else. They want assurances that their new business is unique and won’t be confused with another concept. A federally-registered trademark provides assurances that no one else can use that name, trade dress (which is the look and feel of the brand), or logo design. This is a key part of the initial considerations potential franchisees explore when looking into buying a franchise.
If your business name is fairly common (a quick Google search should be able to give you a good idea), then it’s possible that you may not be able to obtain a federally-registered trademark. There are several factors that are evaluated when the USPTO decides whether to grant a trademark. These factors include its use in interstate commerce, the likelihood of confusion with another trademarked name, and whether or not the name for consideration is actually a brand name rather than being merely descriptive.
It’s a good idea to have an attorney conduct a thorough search of your company name before applying for a trademark. This way, you’ll have a clear idea as to the likelihood of being able to obtain a trademark.
Just about any kind of business can be franchised, but what franchise owners most look for is technology to help them run the business. Software for business management can be complicated and expensive, so it follows that franchise owners are drawn to franchise concepts with their own technology. Many times this technology incorporates several areas of the business, such as royalty calculations, client management, scheduling, financial reporting, and website content management. While it’s not imperative that a business have its own proprietary software or app in order to franchise, most franchises do offer some form of technology. Not having a desirable technology package would likely be a steep hill to climb when it comes time to differentiating against competitors.
One of the distinguishing features of a franchise is the exclusive territories available to franchise owners. A franchise owner can be granted either an exclusive or non-exclusive territory. An exclusive territory is one in which the franchisor will not allow another franchise to open a location within the same territory. An exclusive territory also would prevent the franchisor from opening another company-owned, competing business in the territory. Many times, the franchisor will reserve the right to open a company-owned, non-competing business in the same territory, even if the territory is deemed exclusive. A non-exclusive territory, on the other hand, would allow for the franchisor to either sell other franchises within the same territory or open company-owned, competing businesses within the territory. Non-exclusive territories are less common because they can lead to an overabundance of stores that ultimately harm one another.
Another consideration for establishing territory rights is to determine how the territory will be delineated. One of the most common ways to set up the size of the territory is by the number of households or people in a particular area. Boundary lines are then established to encompass the agreed-upon size of the territory.
Aside from a trademark, most franchise concepts have a unique and memorable logo and image. Just as customers are drawn to well-styled companies, franchisees are drawn to well-styled franchises. If your brand wasn’t professionally designed, consider hiring a graphic designer to spruce up your logo and image.
If you are interested in learning about how to franchise your business, give us a call at 720-999-5517. We’re happy to help.