A To Z Of Franchising
Written by Nony Nema February 24, 20221
Franchising is a kind of marketing concept which can be adopted by an organization as a tool for business expansion. Franchising is a process where the franchisor licenses its technical know-how, procedures, intellectual property, business model, brand name and reputation, and the rights to sell its products and services to a franchisee. In return for this, the franchisor pays a certain fee and agrees to follow certain rules and regulations as stated in the franchise agreement. Franchising is merely the "sharing of the brand" between two independent companies. What customers want when they make any purchasing decision is that the product or service that they buy from any location remains the same irrespective of where they buy it from. Since 1731, the franchising system has been creating economically sustainable local businesses to a great extent. According to reports, there are nearly 8,00,000 franchise units in more than 120 Industries with over 19 million people in the US. That is the "power of franchising".
Franchising has been the main innovator of small, independently-owned businesses in the US for decades. Even during the recent covid-19 pandemic franchising continued to expand, creating greater opportunities for new business owners whereas other Business models contracted. A typical franchisee is usually set up as a small local business and it continues to expand as one invests in it with considerable thought and care. Once the franchise system gets fully established, the franchisor spends in its Advertising and Marketing to recruit its franchisees. If one is to buy a franchise, the first step he needs to go through is signing the franchise agreement which involves the whole process of obtaining and managing strategies, the franchisee training process, attracting the customers, etc.
Both franchisors and franchisees are independent business owners who share a particular brand under a licensing agreement. A crucial role of the franchisor is to grow their number of franchisees whereas the franchisee's role is of serving the branded products and services in the local markets as per the quality standard set up by the franchisor.
Power of franchising
The real power of franchising lies in the fact that in the past 230 years, the world has learned how to "share a brand". Facts suggest that locally owned businesses today have created the most growth than at any time in history due to franchising.
Opportunities of a franchise business
For a middle-class person wishing to climb the ladder upwards, it is an opportunity for wealth creation. For the young generation, it is the opportunity to gain experience in the workplace. For the experienced workforce, it is an opportunity to develop their managerial skills and grow and for the consumer, it is the assurance while making a purchasing decision for any particular brand.
Pros and Cons of Franchising
1. Franchises work through a ready-made business plan.
2. Franchises are less risky as compared to an independent business.
3. It is easier to secure financing for a franchise.
1. Franchises may involve some start-up costs at the initial stage.
2. There is less control on business.
3. Franchise carries no flexibility as there is less scope for Innovation and personalization of business.
Costs involved in buying a franchise business
Firstly, a basic fee is required to be paid by the franchisee to the franchisor which is referred to as the franchise fee. A franchise fee is a fee that a person pays to operate a franchise branch of a company and enjoy its profits. It involves any costs that a franchisee must pay to the franchisor to use its brand and resources. These can include large initial payments and an ongoing percentage of revenue.
Other associated costs with the franchise include-
● Location- Some situations also require you to buy land or a building. In this case, you will be responsible for not only the monthly lease but for the one-time security deposit as well. In addition to this, you will also have to pay for leasehold improvements.
● Equipment- A certain money is also required for purchasing equipment. However, long-term payments are generally available for most equipment purchases.
● Working capital- You will always need some working capital in hand to make required changes in the business operations. Be it paying to the employees or for all the other functions and business processes.
●Advertising fees- Finance is also required for the different types of advertising done to promote the products and services.
Franchise Law was important protection made for the person planning to buy a franchise. It is the FTC's franchise rule which was put into effect on 21st October 1979. The rule requires franchises to supply a full disclosure of the information which the franchisee needs to decide on his investment. This involves a detailed process for the franchisor or franchisee broker representing the franchise and needs to present a franchise disclosure document (FDD) which should have extensive information about the particular franchise.
Franchise Business Model
The franchise business model involves a legal and commercial relationship between the owner of a company (franchisor) and the individual (franchisee). The franchisee is licensed to use the franchisor's brand name and operating business model. The relationship between a franchisor and franchisee must be built upon understanding, mutual respect, and support.
Process of owning a franchise
The following points can be adhered to while thinking about owning a franchise-
1. Research- One should research thoroughly to find a franchise that best suits your interests.
2. Contact the franchisor and apply- Before buying a franchise, fix a meeting with the franchisor to review the financial and legal aspects of the franchise agreement.
3. Creation of a business plan- Strategize your priorities and create a business plan as to how you expect to make a profit.
4. Signing the franchise agreement- Once you sign the agreement, you need to get the initial fee and get ready to start the franchise training to meet the requirements of your franchisor.
Get yourself registered at https://www.franchisebazar.com/entrepreneur-registration or call on 9844443200 for further help and inquiry.
Written by: Resham Daswani
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