Franchising is emerging as a popular business model across the world. As a result, most city lanes, are mushroomed with franchises! However, many are oblivious to the idea of “What is Franchising?”.
There is an oozing economy, better risk appetite and ‘be your own boss’ attitude. It is less risky and does not need expert skills!!! Above all, it is a great source of passive income. All these factors are driving the franchise world by a frenzy.
But the blur wisdom on franchise shatters shackles the dreams!
So, we are taking you through the basics. Here is everything you need to know about franchising!!!
In your plunge to entrepreneurship, knowledge serves as the parachute!
What is franchising?
Franchising is a business agreement between the brand(franchisor) and a party(franchisee). In this agreement, the franchisor authorizes the franchisee to distribute or sell the brand’s products/services.
In addition, the franchisee can use the brand name. They can leverage the business model for a specified time in a specified location.
In conclusion, franchising is a great strategy for expanding the business. The franchisor provides training, equipment, ingredients, and marketing support to the franchisee. The franchisee in return pays a royalty. They might even have a profit-sharing arrangement.
Franchising is basically a business relationship between the franchisee and franchisor
Understanding the franchising terms
- License – The license allows the franchisee to use the franchiser’s trademark.
- Policies – The franchisor lays down the policies that the franchisee must follow. These policies declare all details about the mode of conducting business.
- Marketing support – The franchisee receives continuous support for marketing.
- Training – The franchisor extends complete training and assistance to the franchisee.
- Royalty – The franchisee uses a proven business model and the goodwill of the brand. For this, the franchisee pays a royalty or license fee to the franchiser.
Functioning of Franchise
- The franchisee acquires the franchise by paying initial start-up. There might also be an annual licensing fee. Check out the important questions you need to answer before buying a franchise.
- The franchisor provides assistance to the franchisee in the initial set-up. They also offer training and assistance at regular intervals.
- Once both the parties come to an agreement, they sign the contract.
- The franchisor authorizes the franchisee to use its intellectual properties for business purpose. These include patents, processes, goodwill and trademarks
- The franchisee may sell the franchisor’s products or services by operating as a branch of the parent company. Or it may sell the franchisor’s products under its own business venture.
- There is no restriction on the number of franchisees a franchisor can have. The franchisor may grant franchising rights to one or several firms.
- The franchisor supplies its products, services, training, brand name and trade secrets to the franchise. It also provides training and assistance. Both the parties work together for the success of the franchise.
- In return of these leverages, the franchisee pays a royalty to the franchisor. In some set-ups, they may even have to share a part of the profits.
- The franchise agreement is signed for a specified period. The franchisee is allowed to use the business know-how and brand name only for that period.
- The agreement can be renewed further after the specified period.
5 Perks of Franchising
- Franchising allows franchiser to expand the business with minimum capital and risk.
- It builds up streams of passive income for the franchisor.
- It increases the reach and popularity of a brand.
- The franchisee enjoys the goodwill of an established brand.
- The franchisee also gets proper assistance and training that mitigates risks.
Franchising is a comparatively simple concept. But it still needs the expertise to gauge the market potentials and understand the technicalities. Getting in touch with a reputed franchise consultant can give you best assistance and support in finding the right franchise fit!