Franchise Preparation


The St. Gregory Development Group can assist you in determining which of the distribution methods (i.e., franchising, licensing, etc.) best fits your personal business philosophies, your capitalization, and your growth timeline. For the purposes of this website though, we will focus on franchising and help you determine if it is right for you.

Industry Research

The St. Gregory Development Group can help you determine which of these distribution methods best fits your personal business philosophies, your capitalization, and your growth timeline.  For the purposes of this website though, we will focus on franchising and help you determine if it is right for you.

Secret Shopper

Franchise Preparation begins with analyzing the sales and operational processes of existing competitive franchise brands in your industry.  With this secret shopper exercise, the St. Gregory Development Group will be able to accomplish the following:

  • Determine what makes your competitor’s franchise systems  unique
  • Understand how your competitors evaluate the responsibilities of the franchisee and franchisor.
  • Understand the cost structure and what is possible financially with other industry franchises.
  • Evaluate your competitor’s Sales and Marketing platforms to understand how they generate customers and brand their concepts.
  • Determine the level of Training and Support currently offered by your competitors to their franchisees.
  • Evaluate how your competitors move a candidate through the sales process.

Case Studies

With the information provided in the secret shopper exercise, the St. Gregory Development Group will be able to build case studies that will help you understand why a franchise, in your industry, has success or failure.  This level of perspective is priceless and will allow you to build a better brand than what is currently being offered by your competitors.

Business Audit

A business audit is the first step to understanding how things currently operate within your business. As part of the process, The St. Gregory Development Group will take a microscopic view of your existing operation. This will help us understand your marketing platform, how you chose your existing retail locations, and you current personnel. Special attention will be focused on your existing goals and objectives, your unit economics, your existing resources, and the feasibility of franchising your concept.

Goals and Objectives

The St. Gregory Development Group will begin the business audit process by understanding what the motives are of your existing executive team.  Our Group will never try to change how you do business or make decisions.  Instead, we will learn to work within your personal guidelines to ensure that we are working toward a common goal.

Understanding your core values and what your dreams and aspirations are for your brand helps us guide you to success.  We want to preserve your existing goals and objectives, while helping you reach them more effectively.

Unit Economics

Viable Unit Economics is arguably the most important factor in the long-term success of a Franchisor. We determine whether a business model can be successful (profitable) with a reasonable initial investment that can be recouped over a reasonable period of time.  Franchisors having a business model with viable unit economics create a franchise system full of happy franchisees.

In order to have sustainable recruitment efforts, a Franchisor must be able to provide current Franchisee validation for the recruitment process.  If solid validation is not possible then a Franchisor will experience limited growth opportunities in recruitment.  In addition to limited growth in franchise recruitment, the Franchisor will generally experience little to no growth in royalties from same store sales due to the current franchisee’s lack of profitability.  Having viable Unit Economics is the lifeblood to a Franchisor’s ability to experience revenue growth.

The St. Gregory Development Group will help us develop a viable Unit Economics model for your brand. Dissecting the model of your current unit(s) will help us determine when the positive cash flow point occurs, what the initial investment amounts and timeframe are, when the breakeven point occurs, and lastly the profit margins and peak unit gross revenues.  Once we have a clear understanding of those components, the St. Gregory Development Group will model a new platform that reduces the initial investment and shortens the time for the cash flow and breakeven points.  Creating a platform with viable Unit Economics, as well as, scalability will ensure that your company can thrive in the space it wishes to compete in.

Resources

The time necessary to accomplish objectives is usually determined by the amount of the franchisor’s capital, the qualifications of franchisor’s personnel, and the franchisor’s desire to complete the necessary tasks.  The St. Gregory Development Group will analyze your existing resources and help you determine what will be necessary (personnel and financial) to reach your desired goals and objectives.

Feasibility

By analyzing your brand through this business audit process, the St. Gregory Development Group will be able to determine the feasibility of franchising your concept.  There are some additional stress tests that we will apply to your brand to determine the viability of a strong franchise.  This will include the following:

  • Does your brand offer significant differentiation from your competitors?
  • Is your concept transferrable to a franchisee?  If a strong candidate goes through your training program, will they be able to achieve the same, or better, results than you are today.
  • How competitive is your industry?
  • Is you brand adaptable from one market to the next?  Will your company work throughout the Region, the Midwest, Nationally, and/or Internationally?
  • Do you have strong operational systems and are they thoroughly documented?
  • Do your existing units have compelling unit economics and does the required capital from a franchisee provide a strong return on investment?
  • Do current market trends and conditions provide a stable franchise environment for your brand?

Business Profile

A business profile provides prospective franchisees an introductory to your opportunity. This introductory piece provides a snapshot of your offering and is designed to accomplish the following:

  1. Satisfy your prospects desire to have something visual that explains the opportunity
  2. Provide an outline of your Introductory Video (part of the sales process)
  3. Create excitement and encourage the candidate to take the next step!

There are certain elements contained in each and every Business Profile. The sections that will be listed in your Business Profile are the following:

  • Business Basics
  • Business Features
  • History
  • Strengths
  • Franchise Candidate Criteria
  • Training and Support
  • Territory
  • Human Resources
  • Earnings Claims (if applicable)

The St. Gregory Development Group will help design a visually appealing business profile that may be disseminated electronically to all of your potential franchise candidates.

Business Basics

This section will outline some basic financial information, detail the evolution of your brand, and give a limited territory explanation. This section may also describe your available markets and growth strategy.

Business Features

Most industries have competition and it is important that prospects feel that they can successfully accomplish their personal and financial goals by partnering with your brand.  This section is used to create differentiation and explain how your brand is poised to succeed in the industry.

History

Every business has a story.  This story is told in chronological order and explains where you came up with the idea, the founder’s background, and the growth of the brand.

Business Strengths

This section will outline the power behind your brand.  This may describe your strategic partnerships, your leadership/management team, and the appeal of your product or service.  It is important that this section is bold and creates excitement with prospective franchise candidates.

Franchise Candidate Criteria

This section will outline the type of individual that you are looking for as a franchisee.  Typically, these candidates will come from the following backgrounds:

  • Seasoned Entrepreneurs
  • Wealth Managers
  • Fortune 500 Managers and Executives
  • Current Franchise System Owners
  • Outside Sales and/or Marketing Individuals
  • Small Business Owners
  • Business Consultants
  • Partnership Groups
  • Hard Working People Looking for a Change

Training and Support

This section will briefly describe your training and support platforms. Many individuals that will be interested in your brand will not have a background in your industry.  The backbone of any franchise begins and ends with training and support.

Territory

This section will describe how you break down a territory.  In franchising, territories may be designed by zip code, county, metropolitan area, distance between locations, or just a pool of individuals.

Human Resources

Generally, employees are a necessity of any business.  This section may describe the quantity of employees, positions available, and when they are needed.  This section may also describe whether or not your business is owner operated, absentee, or somewhere in the middle.

Earnings Claims

In some instances, franchises are permitted to make Financial Performance Representations.  These are commonly referred to as “earnings claims”.  The question, how much can I make, is generally the first thing that every candidate wants to know.  If properly documented, substantiated, and disclosed, this can be a powerful tool in selling franchises.

Organizational Chart

Executive Team

An executive team is directly responsible for managing the day-to-day operations (and profitability) of a company. It is important to assign responsibility for each sector of the business. While these responsibilities will change over time, it is important to structure yourself in the beginning.

An executive team in a franchise organization is generally made up of these primary members:

Chief Executive Officer (CEO)

As the top manager, the CEO is typically responsible for the entire operations of the corporation and reports directly to the Chairman and Board of Directors. It is the CEO’s responsibility to implement board decisions and initiatives and to maintain the smooth operation of the firm, with the assistance of senior management. Often, the CEO will also be designated as the company’s president and will be one of the inside directors on the board (if not the chairman).

Chief Operations Officer (COO)

Responsible for the corporation’s operations, the COO looks after issues related to marketing, training, production and personnel. More hands-on than the CEO, the COO looks after day-to-day activities while providing feedback to the CEO.

Chief Financial Officer (CFO)

Reporting directly to the CEO, the CFO is responsible for analyzing and reviewing financial data, reporting financial performance, preparing budgets and monitoring expenditures and costs. The CFO is required to present this information to the board of directors at regular intervals. The CFO routinely checks the corporation’s financial health and integrity.

Vice President of Franchising

The Vice President of franchising is responsible for maintaining continuity in the franchise community. The VP of franchising may be forced to wear many hats, but is solely responsible to dispersing communication to franchisees, facilitating franchisee relations, and in some cases where there is an internal sales force, overseeing franchise sales.

Vice President of Real Estate

While this position can be unique to the organization, the VP of Real Estate is responsible for creating and maintaining commercial real estate interests throughout the country. Responsibilities also include compliance amongst current franchisees.

Board of Directors

A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. A Board of Directors will serve as a “checks and balance” system within your organization. It is always recommended to seek outside critiquing and recommendation when making any significant business decision.

Typical duties of Boards of Directors include:

  • Governing the organization by establishing broad policies and objectives
  • Selecting, appointing, supporting and reviewing the performance of the chief executive
  • Ensuring the availability of adequate financial resources
  • Approving annual budgets
  • Accounting to the stakeholders for the organization’s performance.

**Please review the attached example of a Franchise Organizational Chart for an example

Modeling

Through collaboration, we believe we can help build your company into a fully functional Franchisor, while at the same time maintaining happy, profitable franchisees.  In order for your company to be a fully functioning Franchisor, it must achieve the following:

  • Viable Franchisee Unit Economics
  • Scalable Franchisee Growth
  • Complete Systemization

Strategic Business Planning

Strategic Business Planning will allow your company to have an outline of the organization’s overall direction, philosophy, and purpose. It will examine its current status in terms of its strengths, weakness, opportunities, and threats; allowing for long-term objectives to be established and formulate short-term tactics to reach them.

Preparing a SWOT analysis will allow your company to really have a clear picture of itself as a viable Franchisor. This will allow the St. Gregory Development Group to create an organizational structure defining the necessary roles inside the organization today and moving forward.

Strategic Business Planning will allow the St. Gregory Development Group to reverse engineer your organization. We will start by identifying all of the necessary tasks/functions that are required every day for the Franchisor to function effectively and profitably. Task/functions will then be placed into buckets based on relevance and scope.  Those buckets will then be assigned to an unnamed position. Those unnamed positions will then be placed into an organizational flow chart creating the hierarchy of the organization. Those positions will then be filled by current employees of and/or newly recruited individuals.

Operational systems are an essential component of any business, but especially as a Franchisor. The sole reason an individual purchases a franchise is to become part of an organization that has defined structure, direction, and business system.   Strategic Business Planning ensures that these systems are uniform.

Systemization

Systemization is creating a process by which an organization can function effectively regardless of the individuals that fill each role of the organization. The true test of a systemized franchise is its ability to be replicated over and over again with consistent efforts and outcomes. Systemization allows newly recruited franchisees to be able to achieve defined results through a defined process.

The St. Gregory Development Group, through collaboration, will breakdown every facet of operation of the new franchise model to make sure that it is completely detailed in the operations manual down to the most basic of tasks and scripts.

Franchise Compliance

Franchise Compliance is comprised of 3 areas or buckets

Regulatory Compliance: This area of compliance includes, but is not limited to, compliance with Federal and State laws, statutes, and regulations, such as the FTC’s Amended Rule, state franchise registration laws, state franchise disclosure laws, state franchise relationship laws, business opportunity laws, and consumer protection laws. We assist our clients in not only obtaining and maintaining compliance with these laws, but in staying ahead of the curve. We understand that this myriad of laws and regulations can be overwhelming and expensive for many clients and, therefore, that “one size doesn’t necessarily fit all”. Through our collective experiences, we have come to learn that companies have different needs, which is why we offer a full range of counseling services.

Contract Administration Compliance: This area includes, among other things, franchise agreements and related addenda, purchasing cooperative agreements, area development agreements, master franchising agreements, and other commercial contracts such as promissory notes, security agreements, and asset purchase agreements. We assist our clients in the negotiating, drafting, and document management of these documents, as well as contracts related thereto. Additionally, we understand that these documents, which are potentially the greatest single asset that a franchised system may possess, need to be properly managed and maintained. Therefore, with the assistance of outside counsel, we assist our clients in the developing and maintaining of franchise information management systems, contract and compliance tracking systems, and other mechanisms as necessary to build and protect an emerging franchise brand.

Brand Standards and Specifications Compliance: This area of compliance includes monitoring and enforcing brand standards. This begins with the protection of a franchisor’s trademarks, patents, copyrights, intellectual property, trade secrets, marketing strategies and methods. It ends with ensuring that franchisees are in compliance with the company’s ever changing brand standards, specifications, and requirements. Franchisees are contractually bound to adhere to the obligations as laid out in the franchise agreement and as modified by the operations manual. Therefore, we assist our clients in ensuring that franchisees are, in fact, in compliance with these standards and specifications and, even more importantly, paying their agreed upon royalty payments. Along these lines, we advise our clients to utilize mystery shoppers and to suggest incentive programs to be used in furtherance of these objectives.

Franchise Disclosure Document

So, now that you have a general overview of what “Compliance” entails, where does a new franchisor begin? New franchisors begin with the drafting of a Franchise Disclosure Document (“FDD”) and franchise agreement. The FTC’s Amended Rule requires that franchisors use the FDD with the offer and sale of franchises and many states have similarly followed suit. It was originally known as Uniform Franchise Offering Circular (“UFOC”), prior to being renamed. The FDD and the franchise agreement are the cornerstones to not only compliance with most Federal and States laws, but to a successful relationship with your franchisees.

Franchisors must give a FDD to franchisees at least 14 business days before any contract is signed and before any money changes hands. There are a handful of “first personal meeting states” that that require franchisors to provide the FDD to prospective franchisees at the first personal meeting or first solicitation. The FDD contains extensive information about a franchisor, which is intended to give potential franchisees enough information to make educated decisions about their investments. The information is divided into a cover page, table of contents and 23 categories called “Items”. (Source: Wikipedia)

Franchise Agreement

In general, the purpose of the Franchise Agreement is to assure that:

  • Both parties have a clear understanding of their roles in the operation of the franchise.
  • The arrangement is fair for both parties.
  • Uniformity throughout the franchise system is established and preserved.
  • Standards of operations are prescribed.
  • Both parties are legally protected.
  • Future problems are anticipated and deviations discouraged.
  • Remedies for potential difficulties are provided.

Franchise Registration

There is a third part to the legal process of becoming a franchisor. If you plan to sell franchises in any of the twenty-three states registration states, you must either register or file with their governments. The nature of these registration and filing requirements varies widely from state to state. The difference between registration and filing states is largely one of scrutiny. In filing states, you will either send the documents themselves or certification that the documents exist and pay a fee.

In registration states, an examiner may look over your documents and request changes to comply with state laws. Some of these changes simply require rewording of documents. Others could be more stringent: a request, for example, to increase your liquid assets in order to assure the state that you will not be entirely dependent upon franchise fees for support of your initial franchisees. On the other hand, a few registration states do not require you to send in your documents at all if you have obtained a federal registration of your trademark.

If you are domiciled or incorporated in a state that requires registration, you must register there. Otherwise, whether or not you register or file in any of these states is a business decision. Some new franchisors who intend to sell franchises only in their home state for the first year or two do not register elsewhere at the beginning. However, if you plan a regional or national expansion within the next two years, it may be more advisable to register and file across the board in all twenty-three states that require it. The various states continually “raise the bar” on net worth or other requirements, and it’s often best to get registered as soon as possible, before the conditions for registration become more onerous. It should be noted that the federal government requires that you update the UFDD annually or whenever you make material changes to it. Some states also require that your registration be updated after a material change. As a result, you will probably need to retain your franchise attorney after the documents are prepared and registrations and filing take place.