By definition, Franchising is an enduring relationship in which a franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing, and managing in return for a monetary consideration. Franchise Business is a form of trade by which the owner (franchisor) of a product, service, or method obtains distribution through affiliated dealers (franchisee). (Source: https://www.entrepreneur.com/)
You have a mind-set of business but neither do you want to buy an existing running business nor building something from scratch seems appealing to you; you could be suited aptly for a franchise business model. Franchising is not an industry by itself, but it is a way of doing the businesses and it can be applied to almost every sector. If we go by the definition laid out by the International Franchise Association, “Franchising is a means of issuing products or services. Wherein two types of people are involved in a franchise system: a) the franchisor, who offers its trademark or trade name and a business system; and b) the franchisee, who pays a royalty along with an initial franchise fee for the right to do business under the franchisor’s name and system.”
A franchisor is a party who is the creator/legal-holder of a brand with a decent presence in the market. The same party is looking aggressively to expand its business model to different locations which require less investment and involvement of it.
A franchisee is a party looking out for business or franchise opportunities in the market. The party is ready to invest and buy the licensing rights to use the brand’s name, trademarks, the standard business processes, and sell the designated product or service of that existing brand. The franchise is a business-person who tries to further sell the products and services of a well-established brand in the market, rather than being an entrepreneur who builds a business from scratch.
The franchisee and franchisor can be a regular or an artificial person. That means, they can be an individual, a partnership firm, an LLP, or a private limited company.
Upon signing the franchise agreement, the franchisee gets a licensing authority for:
- Usage of the franchise’s brand name
- Grant to use the franchise’s trademarks
- Access to the Standard Operation Processes
- Marketing support for the designated site from the franchisor
- Software and other operational requirements
- Proprietary knowledge and material
Once an agreement is made between the franchisor and the franchisee, there is the almost little-to-no role of the franchisor in the day-to-day management of the franchisee’s business. Since the franchisee behaves as an independent operator and is a joint employer with the franchisor.
Franchising: a Better Way of Expansion
Franchising helps a brand to expand to vast locations without any limitation of time and financial expenditure. Setting up a new business takes a lot of money and time investment as well. A brand gets the one time licensing/franchise fee from the franchisee to sign up for an untapped location where they see brand can grow prosperously. Other than the franchise fee, a monthly/quarterly ongoing (as agreed in the Franchise Agreement) royalty fee is settled out between both the parties to be paid by the franchisee.
Also Read: How to Keep Investing during Panic
By choosing the franchising model, a brand can reach such locations in a country where they could never even have thought of expanding if it was to be done by themselves.
Role of the Brand in Franchising
When a well-established brand allocates their franchise, they let the franchisee use their existing market demand and presence. The brand has already invested their time and money to create a buzz for their product or services in the market. The franchisee thus gets a benefit of the existing market demand in the particular region and this helps the franchise attain their break-even point a bit earlier than that of a standalone business that would build the business from scratch.
A brand has a set operational process format for conducting the day-to-day operations of the business. The franchisee is supposed to adhere to a similar operating model so that they meet the standards of operation. These subsequent practices have been created at the brand’s end after committing to a few unavoidable operational mistakes and taking corrective measures afterward. So that the franchisee doesn’t have to worry about the mistakes and corrections; rather focus on the successful completion of the service delivery.
The brand side has done the SWOT analysis well at its end so the franchisee does not have to worry about the opportunities of the business. Yes, few local challenges are always a part of any business that you carry-out and cannot be compared with other operational locations. But their challenges can also be well taken care of when ample protective steps like conducting research before opening the business in that area are done.
Once you decide that yes franchising is the route for you, it comes the time to choose the right one for you. Then you have so many options for industries to choose from, choose the one you feel comfortable to go with. According to your geographic area and the customer strata type, you can go about choosing the right set of businesses to further enquire about.
While researching for a suitable franchise business, you may refer to Franchise India’s list of top 10 franchise businesses. When you’ve shortlisted the companies of your interest, explore the franchise opportunity with them. Any reputed company will be happy to share the desired information with you. If it doesn’t, move on! They’re losing a good businessperson who could make their brand stand out in a new location. Whatever be the scenario, never be shy to ask away your questions directly. Put on your detective hat and scrutinize the business thoroughly.