Franchise
A franchise system is a business owned by an entrepreneur. Franchiser offers products or services under a corporation that provides every aspect of the company. In return, they receive a flat fee, profits or sales, etc.
Many types of franchises exist today. There are approximately 120 different industries that use franchising. Restaurants and food industries still make up the most substantial part of it. Franchises have even developed in-home, healthcare, and medical services markets.
If we see from a legal perspective, a franchise consists of a license granted by one business owner to another. Franchising is about the relationship between franchisor and franchisees. The franchisor licenses its trademark and its operating methods to a Franchisee. The franchisee agrees as this is part of the deal to do business according to the license terms.
Short History of Franchise
The United States is the world’s largest country that provides franchise businesses. The Franchise system starts in the mid-19th century. A famous example of this is Isaac Singer. Singer, who invented the sewing machine, created franchises to distribute his trademarked sewing machines to larger areas successfully.
Today, franchises account has the most significant percentage of U.S. businesses. In 2017 top 15 business franchises include McDonald’s, Taco Bell, Dairy Queen, Denny’s, Jimmy John’s Gourmet Sandwiches, and Dunkin’ Donuts, etc.
Benefits enjoy by franchisers
From the franchiser’s point of view, franchising is a system by which its business expands rapidly with fewer requirements. The franchisee fulfills those requirements. In the 21st century, franchisees have multiple franchises, and many have dozens of franchise locations. Franchisers welcome franchisees to help them in businesses and gross hundreds of millions of dollars.
Many times, businesses may gross well over $1 billion. This arrangement shows their operation by reducing the total number of franchise businesses they’re supporting, providing both Franchise and franchisee economies.
Benefits enjoy by franchisees
Many Franchisees have assistance at every step, starting with informed, experienced physical location selection, financing, layouts, equipment purchase, and guidance, with bookkeeping and reporting requirements to city, county, and federal authorities, and also providing personal training. Once the business is up and starts running, franchisers continue to look at the franchisee so that franchisees may achieve success. The franchiser also will provide national promotional and advertising campaigns.
Some features of the franchise
The following are the few features of a franchise:
Established business: Franchise is an established business that only has to expand worldwide. The franchise only needs new regions to open its physical outlets.
Need investment: Franchisee only needs limited investment to start his business. For example, the franchisee has to pay the initial fee, royalty fees, etc.
Quickly start your business in the market: As the franchisor already makes the name of his brand in the market, you don’t need to put extra effort into making your name in the market.
Large business establishment: Franchisors have a large chain of franchises all over the world. The franchisor will have to look after all the franchises from time to time.
Diverting business risks: After establishing many physical outlets all over the world, it is tough for franchisors to look after all the franchises. So, there is a risk of looking after all the franchises.
Mutual agreement: Franchise business all depends on the relationship between franchisor and franchisee. The agreement is based on the understanding between the franchisor and the franchisee.
Separate labor for all outlets: When there are many outlets, you have to divide the labor into all regions. The franchisee looks after the distribution and service at a unit level. It will provide benefits to both franchisor and franchisee.
Franchisor’s role
The franchisee, with any form of business support, likes to protect its intellectual property.
In return, for the use of the intellectual, the franchisee pays the franchisor a one-time initial franchise fee and a continuing royalty fee for using the franchisor’s trade name and operating methods.
The franchisor does not have to maintain a day-to-day business. A franchisee is an independent operator, not a joint employer with the franchisor.
For this reason, the franchisor may guide human resources best practices. The franchisee is free to hire, schedule set employment standards and practices, and train their staff without any franchisor input. Other things like uniforms and food preparation processes are part of the system’s brand standards, pay rate, or the hours by the franchisee.
How can businesses expand through the franchise system?
Franchising means expanding a business and distributing goods and services through multiple outlets. Their works are based on the relationship between the brand owner and the local operator, teaming together skillfully and successfully.
In this mutual relationship, both the franchisor and franchisees share a familiar brand. Each is in a different business. The franchisor works to add franchises and support its existing franchise system. The franchisee agrees to manage the company to the terms of the agreements.
Importance of franchisor’s brand name
A franchisor’s brand is the most valuable asset. Customers decide from which shop they want to buy.
Customers have no concern with who owns a business. They want to get the products and services for which the brand is known. While working with a good franchisor, franchisees sometimes receive the tools and support they needed to live up to living standards and ensure customer satisfaction.
Franchisors execute the company’s brand standards at each location, whether the location is company-owned or franchisee-owned. Franchisors spend time, energy, and financial resources developing their brands, and in the consumer’s mind, a franchisor’s brand equals the company’s reputation.
Successful franchisors have good relations with franchisees because they want to ensure that customers are satisfied each time they shop at a franchised location.
Franchisors provide the menu of established products and an operational system and brand that have already proven themselves. For a successful business, the franchisor and franchisee work together for mutual benefit.
Types of Franchises
Franchising is a great way to become the owner of your small business. There are three different types of franchises, distinguish in terms of your position, your input into the company, and the amount of involvement of the franchisor. The three types of franchises are:
- the business format franchise
- product distribution franchise
- management franchise
In Franchise
Most people prefer the franchise, sometimes called a typical franchise. Franchisor gives the rights to their trademarks, trade names, business processes to the franchisee to sell the product. The franchisor is involved in terms of how the service is provided, and the business is run. There is also a binding contract or agreement between the Franchisee to bind them for a particular time. The great thing for franchisees is that its ongoing support, advice, and training. This is because first, you have to give experience to franchisors. Guidance and proper training can make a massive difference in business; this is a great benefit.
The business format franchise is a popular type of franchise system that is chosen by franchisees. Some of the biggest brands that select this type of franchising are McDonald’s, Dunkin’ Donuts, Starbucks, and KFC. You can tell the franchisee work with each other from these big brands by comparing the product in each branch you visit. For instance, if you order a Burger from London, you can get the same in Manchester. Some of the most popular business format franchises are fast food, fitness, and restaurants as well.
Product distribution Franchise
This franchise is similar to a supplier and distributor relationship. The franchisors are responsible for providing the product or service, and the distributor can sell the product. The main thing is that franchisor is given the product, whereas, the business format, includes training the Franchisee. In Franchise, the franchisee can be independent in not having the restriction and guidelines that a business format franchisee has. The product distribution franchise still has to follow specific instructions, such as selling the products on an elite level. The franchisee has to pay a certain amount of fees for using trademark names and the products that they want to sell.
This type of franchise method is used for larger products. One of the big brands that use the concept is Coca-Cola. Although the business format franchise is the most popular, the product distribution franchise represents the highest retail sales percentage.
Management Franchise
In this type of franchise, the manager does not need to take in the day-to-day part running of the business. A franchise would be ideal for some people who already have previous managing experience. It allows individuals with transferable skills to take of business and lead it to success. Business-related skills, such as having an entrepreneurial flair, will help you in the journey to success. The franchise manager will also be required to pay fees for the ability to use the trademarks of a franchise. Your focus is on business development, overseeing the business, and managing the team as well.
Management franchising is excellent for resale franchises. You don’t need to make changes, and it’s easy to run an existing franchise. If a franchise is not performing well, you may have to implement severe changes to the staff or the day-to-day operation.
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