Who deals with the franchising of businesses?

If you have been trying to figure out how to start your new business up, but do not want to invest all those resources and headaches to try new stuff out, maybe you should try franchising. Here is everything that you need to know about franchising, and what factors should decide whether you should franchise in business or not:

What is franchising?

The concept of franchising has been around for ages. In simple terms, franchising refers to paying more significant company money and complying with specific demands in return for intellectual property, the rights to use their brand, and many other rights.

Franchising is fundamentally merging a smaller company into a larger company, but not permanently. The branch franchisee can still work independently but must pay a specific royalty regularly, even when it is facing losses.

On a global scale, most companies use franchising to enter a foreign market, so they do not have to invest a large chunk of money buying property and potentially investing in the unknown.

How do you franchise?

Franchising can be done in either of the two ways: either as a franchiser or as a franchisee. We will go into more detail in just a moment. Both parties have something to gain, and while most franchising benefits the franchiser more than the franchisee, the franchisee gains experience and better sales growth due to investing in an already-established name brand.

Franchising as a franchiser

As a franchiser, you can franchise by selling your rights to the company – or rather – the business’ logo, name, and even the business model to the compliant franchisee. By selling your rights, you will gain an initial investment from the franchisee, and then a portion of the profits made by that particular branch regularly. You can also set other demands, but these need to be before the contract is signed.

As a franchiser, you get a multitude of benefits. We will shed further light on that later.

Franchising as a franchisee

As a franchisee, you get rights to use your franchiser’s brand name, logo, and even sell products that resemble what the franchiser is supposed to be selling. In other words, you get to become a reseller – for the lack of words – for the more prominent company.

For many entrepreneurs, the limitations placed by a franchiser are very uncomfortable, mainly because they limit the different paths that a particular branch can take. For many others, however, franchising is an excellent platform for learning.

It helps ensure that the business makes money through the several tried-and-tested methods used by the parent franchisor itself.

Franchising is also an excellent opportunity for entrepreneurs to make connections with a more prominent organization, which can be used in the unseen future.

What do you get from franchising?

Both parties get a multitude of benefits from franchising, with the franchiser benefiting more often than the franchisee. Here are some of the different benefits that both parties obtain from franchising:

Benefits for the franchiser

Some of the benefits for the franchiser are as followed:

  • Advanced down payment – It is a mandatory rule for all potential franchisees to invest an advanced payment to the franchiser. More often than not, this investment is non-refundable, but the terms can be changed in the contract, depending on the demands of both parties. The payment and nature of payment are listed on the contract, and thus cannot be changed afterward.
  • Improved brand awareness – Most of the time, franchisees are in areas where the franchiser itself does not have its dedicated branch yet. By signing the contract and allowing the franchisee to use your brand logo and name, you are making it easy to improve brand awareness in that particular area.
  • Pooled advertising – Similar to brand awareness, the franchiser can spread advertisement through its franchisees without spending an extra dime – if mentioned in the contract. Pooled advertising also means that the franchiser has a better return on investment (ROI) in general, for advertisements.
  • Efficient group purchasing – The franchise does not have to invest money into buying a separate branch when the branch comes to them. Albeit the sales will not affect the franchiser in the very long term, the initial payment and a fixed royalty based on a pre-determined schedule is an excellent investment, nonetheless.
  • Decreases competition – Because smaller companies are becoming more of a threat in the local market nowadays, mainly because of the rise of young and successful entrepreneurs, companies are finding it hard to decrease competition. By joining hands with a bigger franchiser, smaller franchisees essentially mold themselves as a part of the more prominent franchise and reduce competition for them.
  • Stock market rise – By decreasing competition in the market, you are ultimately increasing your stock market dominance. Increased dominance directly translates to better stock prices, which in terms leads to happier investors.
  • Decreased liability risk – Because there is not much to lose through franchising for the franchiser, the liability risk is often non-existent. Even if the franchisee is not profiting, the franchiser will most often get their royalties.
  • A good business growth strategy – The entire concept of franchising is, at its elementary stage, a good business growth strategy for the franchiser. You lose nothing but obtaining a new branch that is intending to put in their own money and still give you some royalties regularly is something that many would consider a one-sided profit with virtually no loss.

Benefits for the franchisee

Although it would seem like the franchiser gets all the benefits, the franchisee still holds a lot of benefits, that can sometimes justify the significant investment and regular payment:

  • Brand security – Building a brand from scratch requires an immense amount of investment, luck, and energy. Because you are essentially borrowing an already-known brand’s name, you will enjoy better benefits and won’t need to worry about investing in figuring out a brand.
  • Better training – The franchiser will be responsible for training and helping improve the overall dignity of the business the franchisee is running. It translates to better training if the franchisee can pay for the different training materials required.
  • Potential growth in sales  Because brand translates to better sales (as seen in some interviews and Apple & Microsoft being the most prominent examples), franchisees will see a growth spurt in sales and customer flow.
  • More contacts – Becoming a part of a larger corporate enables many smaller entrepreneurs to become acquainted with the more prominent players of the market. It translates to a potentially more successful start-up, should the entrepreneur decide to go indie again.
  • Builds confidence and experience – Because the franchiser is responsible for training and ensuring that the franchisee is good to go, people behind the franchisee will gain a considerable amount of experience on how to perform in that business. This experience translates to confidence, which is essential in any business throughout the world.

Who deals with the franchising of business?

All of this leads us back to the main question at hand “which deals with the franchising of businesses?” – the answer is, whosoever gains the most. If you are a potential franchisee, but can not find what franchiser to lean more towards, here are some tips that might help you jump through the plunge:

Interview the franchiser

Before you sign deals with the franchiser, try to have a formal (and maybe an informal) interview, so that you can understand what the whole brand is all about. More often than not, an interview can also help you understand what you will gain from the whole process and investment.

Interview with fellow franchisees

Find franchisees who have invested in the same franchiser that you are aiming for and interview them extensively. Do not be afraid to ask the critical questions, because you are going to invest a large chunk of money into a more significant corporation – which might be non-refundable too.

Read the contract extensively.

Be sure to read the contract extensively and figure out all the demands that the franchiser has set up for you. Because contracts are compelling legal documents that can shape the future of your business, never take them lightly. If you think that you are having issues understanding the contents of the contract, hire a professional lawyer so they can break it down and extensively explain everything to you.

Do the maths

Not everything has to do about the brand. Remember that if you are not making money from a business, even in the long term, is that business even worth it in the first place? Before signing a contract, do the maths in your head and figure out whether the deal is worthwhile for you or not.

Final Thoughts

We hope that this article was able to explain the ins and outs of franchising adequately and who benefits more from franchising. There are no specific rules that all franchisers must follow to make their demands, so be sure to be vigilant. As a franchiser, you need to be careful about who you associate with, to gain the maximum profit.