A franchise is a license or agreement entered by two parties, namely the franchisor and the franchisee.
- A franchise give a person or a group of persons "The Franchisee" the rights to market a product or service using the trade mark of another business "The Franchisor" . The Franchisee;
- has the rights to market the product or service using the operating method of the franhcisor.
- has the obligations to pay the franchisor certain fee as explained under the heading of "Financial Implication of Franchising" in exchange for the rights.
- The Franchisor has the obligation to provide these rights and generally provide support to franchisee, both initial and on-going.
Strictly speaking, franchising is not an industry or a business. Rather it is the method of businesses use to market and distributes their products and services. Both Franchisor and The Franchisee have the vested interest in the success of the brand.
Modern Day franchise comes in two variants:
- Business format Franchise
- Products and Trade Name Franchise
Business Format Franchising;
In the business format franchising, the franchisor offers the franchisee a clearly defined package of deliverables and services. For example;
- A strong corporate identity including the use of trade marks and logo.
- A Complete system of conducting the business at optimal efficiency.
- Hands-on assistance on site selection, store design and layout, sourcing of equipments, hiring and training of staff, initial promotion activities, sourcing of products and many more.
In return in accessing to this services and package, the franchisee are require to pay an upfront initial fee or franchise fee upon signing of franchise agreement.
Furthermore, the franchise agree in pay continuing fee to the franchisor in exchange for continuous support.
Business format franchising is by far most popular franchise format. Opportunities are available in many industries such as;
- Quick Service Restaurant (QSR)
- Convenient Store and Retail Shop
- Automotive services
- Real Estate Agencies
- Home Repair Services
- Business Services & etc
Products & Trade Name Franchising
Products and Trade Name Franchising is the original franchise format which has largely found wanting. To a certain extent, it continues to be used in industry such as automotive, petroleum and soft drinks distributions. This type of franchising does not always require the payment of ongoing fee. The franchisor provides trade mark and logo, initial and ongoing advertising campaign, limited range of initial and ongoing support. In return, the franchisee are require to purchase a specific product or a range of products exclusive from the franchisor.
Summary
Franchising may seem to be an easy way to start one's business and many times it is just that. However, investing in franchise business is no guarantee you will be successful. Your success is depending on these 3 main factors;
- Your ability to make investment to secure the franchise, open it for business and provide working capital.
- The Care of which you selected the franchise.
- Your passion for the business and your determination to build the business into the best of its kind within your trading territory.
