Definition: Franchise Business
A franchise business model entails granting a person (the franchisee) the authority to run a business using the name, trademarks, and business plan of an established corporation (the franchisor). In this blog, Learning Perspectives will explore the meaning of a franchise business.
Movie Case Study
The scene from the movie shows Avni Kamat (played by Kareena Kapoor), who is asked to meet DCP Bajirao Singham (played by Ajay Devgan) for matrimonial purposes. Avni, however, isn’t interested in getting married, as she is looking to establish a franchise for her salon business. She mentions that she wants to open 4 salon branches. Singham, too, isn’t interested on getting married and they are debating what they will say to their parents.
Understanding Franchise business
There are many terms related to a franchising business. Let’s understand:
Franchisor
The business that owns the entire brand and business plan is a franchisor. The franchisor offers assistance, instruction, and access to exclusive systems, goods, or services to the franchisee. Several well-known franchisors include Marriott, Subway, and McDonald’s.
Franchisee
The person or organization that buys the authority to run a franchise location is known as the franchisee. While starting and operating the firm with their funds, the franchisee gains access to the franchisor’s well-established brand and operational procedures.
Franchise Agreement
A franchise agreement is a formal document that specifies the terms and conditions of a franchise partnership between a franchisor and a franchisee. This covers the length of the franchise, costs, rights to the territory, operating procedures, and other responsibilities.
Franchisees typically have to pay an initial franchise fee to obtain the right to launch a franchise. This price is followed by royalties. They also continue to pay the franchisor royalties, which are usually a portion of their revenues. The franchisor is paid through these fees for the use of their technology and brand, as well as for ongoing support. To make sure franchisees are prepared to operate their businesses profitably, franchisors offer thorough training programs as well as continuous assistance. This can include help with marketing, operational support, and the first training sessions.
Regional or national marketing initiatives are frequently overseen by franchisors. Franchisee contributions go toward a marketing fund that helps sustain brand consistency and supports these initiatives. Consistency in operations is one of the distinguishing features of a franchise. To guarantee that every franchise store, regardless of location, has a comparable client experience, franchisors provide comprehensive manuals and guidelines.
Steps for Beginning a Franchise Business
Research: Examine different franchise opportunities, gauge consumer demand, and evaluate the standing and infrastructure of the franchisor.
Finances: Ascertain the entire amount of money needed and arrange funding. This could include setup fees, working capital, and other charges in addition to the initial franchise price.
Exercise due diligence by closely reading the Franchise Disclosure Document (FDD), which contains comprehensive details about the franchisor, costs, legal matters, and other important factors.
Legal Advice: To make sure you comprehend the conditions and responsibilities of the franchise agreement, seek advice from a lawyer with experience in franchise law.
After you’re pleased, sign the franchise agreement and send in the first installment of the franchise fee.
Training: Take part in the franchisor’s training program to gain knowledge of how the business is run.
Advantages & Disadvantages
One of the major advantages of an established brand is that there is less risk than beginning an independent firm, it comes with an established clientele, a tested business plan, training and assistance, and brand awareness. Numerous industries, including food and beverage, retail, hospitality, fitness, and more, use franchising. It provides a means for entrepreneurs to launch a company that has a better chance of succeeding because of the awareness and support that come with well-known brands.
However, the disadvantage is that it has upfront and continuing costs. There is restricted control over day-to-day operations, rigid adherence to franchisor policies, and possible disputes with the franchisor.
Franchise companies give people the opportunity to operate under a well-known brand with a tested business plan, providing an organized route to entrepreneurship. Franchisees must be ready for the financial commitment and operational limitations of this business model, even if they offer tremendous benefits in support, brand awareness, and lower risk. Anyone thinking about becoming a franchisee must take certain important steps, such as thoroughly analyzing prospective prospects and comprehending the nuances of the franchise agreement.
