#Business franchising has been accepted worldwide by a lot of businesses cutting across almost all sectors in #business. Franchising has helped a lot of start-ups and entrepreneurs who wish to do business under the umbrella of a notable brand but for themselves. In exchange, they pay agreed fees and percentages to the parent company.

 

TERMS

Franchisor: Owner of a brand or business venture

Franchisee: A partner wishing to use the franchisor’s brand in carrying out his business

Franchising is an exciting marketing method. If it’s properly structured and well run, it provides benefits and satisfaction for both parties, however it’s not an easy ‘route to riches’ for franchisor or franchisee, nor is it a panacea for the ills of a ‘sick’ business. Franchising can be described as the practice of the right to use a firm’s business model and brand for a prescribed period of time. For the franchisor, the franchise is an alternative to building “chain stores” to distribute goods that avoids the investments and liability of a chain. The franchisor’s success depends on the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.

Establishing a franchise has to be undertaken with skill, patience and capital. The time scale for establishing a franchise system and preparing it for marketing can be as long as three years and it can take another three to five years before the franchisor begins to see net profits and cash flow. The capital requirements of a franchisor have to reflect these time spans. However once the network moves into net profit and achieves relative maturity, the return should make the effort and investment worthwhile. Examples of reputable companies that run franchise include but not limited to: McDonalds, Mr. Biggs, Golden Tulip Hotels, Intercontinental Group Hotels, and a whole lots of others.

Franchisor Responsibilities

The franchisor typically helps a new franchisee get off the ground, providing advice concerning location, setup, equipment, staffing, supply sourcing, advertising, staff training and other aspects of starting a new business. While you might have the ability to design and implement many of these elements yourself, the franchisor has proven experience that draws on years of trial and error. Also, you’ll benefit from any large-scale advertising campaigns the franchisor implements.

Franchisee Responsibilities

In return, the franchisee might pay the franchisor a #start-up fee, a percentage of future gross revenues and a set fee for advertising costs. Also, the franchisee usually cedes over certain aspects of the business so the franchisor can protect the brand. For example, a franchisee might agree to maintain certain quality standards, keep prices in line with the franchisor’s overall business strategy and participate in large-scale marketing promotions. These limitations protect the integrity of the franchise system, preventing a few poorly run franchises from ruining the whole system’s reputation.

ADVANTAGES OF A FRANCHISE

As a Franchisor

1. You have a business running for you but not run by you.
2. You product/service reach more target with almost no effort from you.
3. Your brand network increases thereby increasing in popularity.

As a Franchisee

1. Starting up with a brand name already enjoying recognition
2. No much advertising and sensitization needed
3. Choice of the location can be chosen by you (except otherwise stated in the agreement)
4. Franchise in business helps generate more sales as soon as you start as customers are attracted because of level of quality and consistency and the recognizable brand name of the franchisor.
5. Franchising may increase your chance of success in business
6. Most likely, the franchisor trains the franchisee and also supports in the form of general advertisement, operation procedures and assistance and management support.

DISADVANTAGES OF A FRANCHISE

As a Franchisor

1.  Franchisee may compromise quality and standard hereby affecting brand

2. Might not be able control international franchisees

3. Other reputational risks may abound

As a Franchisee

1. General franchise business decisions might not consider the franchisee

2. The franchisor is not compelled to renew the franchise agreement and might put the franchisee out of business

3. Business must be done according to the operational manual of the franchisor

4. Annual payment of franchise fee

5. No complete control if you decide to sell your franchise business

6. Your choice of location might be restricted except otherwise stated in agreement

7. Franchise agreement may be terminated if other products/services are sold/rendered within the complex/office.

 

Types of Franchise

The different types of franchise include:

i.) Single Unit Franchise

ii.) Buying an Existing Franchise

iii.) Multi-Unit Franchise

iv.) Area Developer

v.) Master Franchise

Many franchise companies are looking for the right people to work with as this enables them to expand their business and awareness to different parts of the nation. But before investing money in any franchise business there are many things you have to understand such as asking yourself the following questions:

1. Why do you need to buy the franchise?

2. Is it right for you?

3. What sector of business do I go for?

4. Do I have enough capital for my initial investment?

5. How many people will I employ?

6. How to structure your profit?

Franchising your business can be a very successful way of expanding. Some of today’s largest businesses have used franchising to finance and accelerate their growth into global brands. However franchising must be properly planned:

• It must be pilot tested with company-owned and operated outlets

• Business must be successful, distinctive and replicable

• Take proper professional advice – Solicitor, Banker, Accountant and possibly a Franchise Consultant

The Franchise Agreement must be written by an experienced Franchise Solicitor

• Take time to write an operations manual

• Choose franchisees very carefully and slowly

• Avoid overselling and forecasts

• Have first class trainings

• Focus on Franchisee satisfaction and profitability

• Keep developing the Franchise and maintain standards

• Ensure marketing, advertising and PR is first class

• Prove The Business Concept

The average stand-alone #small business has an 80% chance of failure in its first five years of operation. Prior to franchising, a small business should operate for at least this time (and certainly no less than three years) to prove that it has a viable concept, on-going market demand, replicable systems, and a management, logistic, marketing and training structure capable of supporting franchisees in a variety of locations. If not, the business may well become another statistic. During this period, it is highly desirable for the intending franchisor to open several outlets using their own capital in which they can test the adequacy of their systems, procedures, training etc. The lessons learned during this phase will reap dividends after the successful commencement of franchise operations.

 

 

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