The process of becoming a franchisee may differ from country to country, or even brand to brand. Most often, this is because some countries may or may not have in place specific laws that regulates franchising. Of course, there could be other determinants such as company policies or other reasons too. So although this isn't a one-size-fits-all overview, but at least it should provide franchisee candidates with an insight into the franchise approval process and what could be expected to happen.
Initial Enquiry & Pre-qualification
After conducting your own research and filtering out franchises you would like to learn more about, the next step is to initiate contact with the franchisor and express your potential interest in taking up their franchise opportunity. Some franchisors may engage franchise marketeers to handle franchise sales so you may not actually meet with the franchisor at this point yet. Simply calling up or sending an email request for information may not provide you with the sufficient knowledge to make an investment decision because most franchise marketeers will not want to let out too much information to an unknown party (you) at this point. In most cases, the natural outcome from here is a meet up where both parties are able to conduct a face-to-face discussion. The franchisor will also require you to fill in and submit a Franchise Application Form, consisting of (but not limited to) personal information regarding your particualars, skills and experiences in order for them to understand more about you and evaluate your suitability for the franchise system.
Receipt Of Franchise Information
After the pre-qualification is completed and you are determined to be a potential fit for the franchise system, the franchisor will provide you with a franchise disclosure document that outlines key factors in the franchise relationship. In addition, you will also be required to sign a Non-disclosure Agreement (NDA) to ensure that whatever was discussed and disclosed to you will remain private. Failure to adhere to the NDA could lead to legal repercussions.
Developing & Submitting Your Business Plan
Most franchisors will want franchisee candidates to submit a business plan detailing strategy for your franchise unit. The franchisor should provide assistance in drafting the business plan where necessary.
The franchisor will conduct their own review on franchisee candidates which may include reference checks and financial analysis. Upon successful qualification, the franchisor will provide you with a Letter of Intent (LOI). By signing the LOI, you are committing yourself to an initial deposit, typically 10-20% of the franchise fee, that is non-refundable. This will indicate to the franchisor that you are committed to taking up the franchise and also allow the franchisor to initiate proceedings for the necessary pre-development support, such as planning and arranging for resources. Major highlights of the LOI will address terms such as upfront and on-going fees, franchise rights and marketing commitments.
Signing The Franchise Agreement
The franchisor will provide you with copy of the Franchise Agreement for your review before the actual contract signing date. Typically, the review period afforded should span between 14-30 days but could vary due to statutory regulations or company policies. Before jumping right in, be sure to have your lawyer take a look at the contract and clarify any doubts or concerns with the franchisor. If all is well and good, signing the franchise agreement officially signifies that you are now part of the franchise system.
Developing Your Franchise Unit
The franchisor will provide you with the necessary support to help you set up your franchise unit. However, you should monitor the situation for any problems that could delay your unit opening because the Franchise Agreement will state that your franchise business should be up and running by a specified date, normally 1-3 months (but could be shorter or longer) from the date of signing the franchise agreement. Failure to set up shop in time may lead to the franchisor imposing penalties or even revoking the awarded franchise rights.