It has been approximately three centuries since franchising first appeared as a business strategy. However, the fundamental ideals of the organisation have not changed. You can find a franchise business opportunity easily thanks to internet access.
What is a Franchise?
This business model entails the distribution of goods or services following an agreement between two parties. A franchisor is typically a business or firm that developed the first business concept. The franchisor establishes the business, markets the product or service, and then invites other parties (franchisees) to join the venture. Naturally, a franchisee must adhere to certain terms prior to accepting the franchisor’s offer.
At its most fundamental level, a franchise is when the franchisor grants the franchisee the right to use the franchisor’s brand and name for business reasons. The franchisee receives the majority of the benefits associated with being a well-known brand. In exchange, the franchisee pays the franchisor royalties and the initial fee required to conduct business under the franchisor’s name. The term “franchise” refers to an agreement between a franchisor and a franchisee that is legally binding. However, the term has come to refer to the real business of franchising.
There are two types of franchising. These include:
i)Product Distribution Franchising: Here, the franchisor offers only the right to distribute their products. For example, a soft drinks manufacturing company can grant franchising rights to a local brewery or grocery store to be the sole distributor of their products in a particular location.
- ii) Business Format Franchising: This is the typical franchising deal that most people know. Here, the franchisor offers nearly everything for the franchisee. In addition to the right to use the franchisor’s brand name, products, or services, the franchisor also helps the franchisee with site selection, technical support of any kind, training, marketing and advertisement, and any other issue to ensure that the franchisee sets up their establishment properly.
It’s crucial to remember certain things about franchise business opportunities:
- Franchising is About Relationships
Like many business opportunities, franchising is about developing strong relationships with the right people. While the legal aspect of it is crucial, relations matter a lot. The fundamental relationship is between the franchisor and franchisee. To ensure that this relationship blossoms, each party has to keep their end of the bargain. This means the franchisor has to support the franchisee when necessary. The franchisee, in turn, has to uphold the franchisor’s brand image, ensuring that services or products are up to the franchisor’s standards.
- Franchising is About Systems and Support
A good franchisor ensures that franchisees have all the assistance they require to get started. The franchisor must provide the tools and systems necessary to assist franchisees in capitalising on franchising business prospects. All of this is in the franchisor’s financial best interests. A well-supported franchisee can establish rapidly and contribute to the franchisor’s standard-setting process. This is critical since people have a strong affinity for certain brands. This implies that such clients have a reasonable expectation of service or product quality. Making a concession on this point could be bad to the franchisor.
Thus, by offering the tools and methods, a franchisor ensures a positive working relationship with the franchisee and protects the entire company model.
Key support structures provided by the franchisor can be in the form of:
- i) Field support
- ii) Continuous marketing and advertisement support
iii) Research and development for new products and services
- iv) Training and technical support
- Franchising is a Contractual Relationship
To those not familiar with franchising, it may seem like any other business model of a large corporation. However, there are key differences. Among them is that the franchisor is not involved in the day-to-day operations of the different locations that offer services or products. It is the sole responsibility of the franchisee to oversee such things. In many jurisdictions, a franchise document of disclosure lays out all the crucial details and legal aspects of the franchisor-franchisee relationship. For example, in the US, a franchise agreement is legally recognized when”
i)The franchisee is going to pay a fee to the franchisor
- ii) The franchisor agrees to let the franchisee use his trade name while doing business
iii) The franchisor exerts a certain amount of control over the franchisee’s commercial activities.
It’s crucial to remember that the exact definition of franchising may vary. For instance, some states require a ‘community of interest’ provision in every franchise document of disclosure.
In a nutshell, a franchise business opportunity can be lucrative for all parties involved.
