WHAT IS FRANCHISING
A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s
trademark or trade name and a business system, and a franchisee, who pays a royalty
and often an initial fee for the right to do business under the franchisor's name and system.
The FRANCHISOR is the owner of the brand and operating system
The FRANCHISEE is the “active” investor/operator, and is the one who provides capital, manpower, and time in managing the unit.
Advantages of Franchising
High Success Rate
Compared to establishing a new business, a franchise business has a higher success rate. It comes with reduced calculated risk because it is a business model based on proven ideas and implementation.
With the experience of the franchisor, the franchisee will have lower risks.
Recognized brand and trademark
The use of a known or popular brand name is an advantage to franchisees as consumers are already familiar with the quality of the product or service that is linked to that brand as compared to creating a brand name for a new business.
This includes assistance on site selection, design, construction, finance, training, and a marketing program.
Throughout the franchise term, the franchisor will be providing assistance through regular visits, continuous training, system-wide marketing and advertising, and product research and development.
Franchisors procure materials and supplies for all the stores resulting in discounts (from bulk purchases) which can then be passed on to the franchisees.
Franchisors discover and perfect operating and management efficiencies that they pass on to their franchisees. These are designed either to help a franchisee overcome his lack of experience in running a business or polish an acquired business sense.
Quality is of the utmost importance. Through the franchisor’s regular visits and ongoing research and development, the product and service standards will be sustained.
Franchisees will receive ongoing advice/consultations with the franchisors to ensure a fruitful working experience.
With better information about the market, strategies for better business operations are more accurate as franchisees and franchisors share best practices.
Through the franchisor’s experience and control systems, profit potential can be predicted.
Challenges of Franchising
The franchisee is required to consistently follow the system through the operations manual provided by the franchisor and is bound by the franchise agreement.
The franchisees pay a certain percentage of their franchises’ revenues to the franchisor each month, usually royalty and advertising fees aside from the initial franchise fee.
Franchisees may only operate in the location assigned by the Franchisor and must adhere to conditions for expansion or relocation according to the franchise agreement.
Franchising is not an instant success. Franchisors who fail to give franchisees ample support or franchisees who tend to be lax in complying with the operational procedures and adhering to franchise agreements create dents on the established system, later on creating damage to the business or the brand.
Qualities of a Good Franchise Business
Successful franchisors have solid industry experience. They should be experts in their business. They are looking for individuals that can leverage their business skills developed from professional and personal experience.
Franchisors will be experts in training new franchisees on how to develop the knowledge and skills necessary to ramp up and run their business model successfully.
Franchise support is provided on several levels such as ongoing training, new product development, and new technology. Good franchise companies are always evolving their system to keep ahead of the competition and stay ahead of industry trends.
Effective franchise systems will develop a collaborative dynamic not only between the franchisor and franchisees but amongst the franchisees to always be improving the business model and efficiencies. Annual conventions, mentoring groups, and advisory councils are a few ways franchisors support their franchisees.
Some industries need strong brand names to help with their success, others do not. There is a careful balance between having name recognition in your area, but having available territory. Evaluating the track record of the franchise in new territories will be valuable in your research.
Proven Sales and Marketing Systems
Franchises should provide time-tested systems that fit their business model. Good franchisors have effective advertising materials, marketing approaches and know what media are the best option for their brand.
Buying and Purchasing Power
By pooling the resources from all the franchise owners, the franchise system should be able to achieve better pricing on supplies, necessary products, or marketing mediums than you could do as an independent business owner.
Demographics and Site Selection
Franchisors should provide the demographics required to support a healthy business in their franchise. When the location for the business is key to success, expect the franchisor to assist in identifying and evaluating the best locations.
Qualities of a Good Franchisee
Leader / Communicator
Successful franchisees are typically successful leaders. A great leader is someone who is influential, with good decision-making and, most importantly, excellent communication skills which are necessary for leading and motivating staff as well as ensuring that the franchise provides top-notch customer service.
A great franchisee should be comfortable with taking the chance on a franchise being successful as well as be able to take calculated risks that will help make their business grow.
Willingness to Learn
It's important to understand that you will need to accept training and guidance from the franchisor. Every circumstance - positive or negative - should be viewed as a learning experience that can help you get to the next level and become even more profitable and successful.
Being adaptable is key as a franchisee. Possessing the ability to be flexible and adapt to changing circumstances is a must as well as being resilient and able to bounce back from missteps as you establish your new business.
Franchise agreements require you to follow a specific set of business practices established by the franchisor and used with success by other franchisees. Uniformity is necessary so that customers know what to expect at any franchise location.
Running a franchise requires financial knowledge, including how to figure out profit and loss, labor and materials costs, and do accounting for the business. Financial stability often needs to be demonstrated before you can purchase a franchise.
A franchisee who can keep expectations realistic will have an advantage over others who may not be patient enough to keep making the effort long enough to see profits and success.
Successful franchisees are driven by setting and obtaining measurable goals to stay focused and on track towards making the franchise a success.
Without the passion and drive for success, it is unlikely that you will be successful. A franchisee with a passion for success and for the product or services they are selling will go above and beyond to make sure their business is successful.