Historians stated that Franchising came to being when feudal lords started the idea of trading the right to receive taxes and carry out market operations on their behalf. The first record of franchising was discovered in the mid-1900’s century in Germany when a contract was set up by the brewers to solely sell their beer in the laverns.
In 1851, franchising began in the United States when Isaac Singer started selling rights to traveling independent salesmen who sold his sewing machines to those who needed them.
The world of franchising has since begun to expand all around the world and it is currently prevailing in many countries.
What Is A Franchise
A franchise is a license that is issued by the franchisor to an individual (franchisee) or group of persons to sell its products in a particular location.
It can also be said to mean when a franchisee is given the right to the trademark of the franchisor.
It is a form of business that is owned by an individual known as the franchisee but overseen and branded by a larger company known as the franchisor.
If you are considering how to find business ideas, business names, business strategies, and support that can help you to speed up in the business world, franchising may be the exact thing that you are looking for.
Types Of Franchise
There are different types of a franchise which will be discussed under this heading.
Here are the different types of franchises includes;
- Management franchise
- Product or distribution franchise
- Business format franchise
This type of franchise is taken on by the franchisee to manage the business they make available training opportunities to offer guidance and support.
Product Distribution Franchise
This type of franchise deals mainly in bulk products and it is based on supplier dealer relationships. In this case, the franchisor grants the franchisee license to distribute the franchisor’s products although access to the entire management of the business is not granted.
Under production distribution franchise, the franchisor also grants the franchisee access to the production process.
Business Format Franchise
Business format franchise is the commonest type of franchise system that has been practiced and is often found in the food, fitness, business services retail industries.
Under this type of franchise, the franchisee has access to virtually the entire plan and process of every area of the business.
How Does Franchise Work
In the franchising world, the franchisee gives monetary value in exchange for the franchisor’s knowledge and experience. With this, the franchisee can speed up his business since he will be treading on the already built experience of someone else. He knows things to avoid and areas to focus his strength on.
While the franchisor shares his skill on the job in exchange for a monetary value, he can make use of the funds given by the franchisee to expand his business and boost his financial strength.
It is much easier to succeed in business starting as a franchise instead of having to build or set up a new brand from scratch.
Benefits Of Franchising
It is no longer a surprise when potential entrepreneurs choose to franchise over setting up their business. This is basically because of the numerous benefits that both the franchisees and the franchisors stand to derive. These benefits are so numerous out of which the following have been extracted.
Established Customer Base
The purpose of setting up any business is for customers’ patronage because this is the main factor that keeps the business going.
In the world of franchising, the stress of getting customers is drastically reduced or taken off since the already existing business has made a name making it easy for investors to sell new products.
This is another benefit of franchising where the franchisee receives knowledge about the operations of the business. This makes it possible for the franchisee to take advantage of the experience of the franchisor and also be able to avoid certain mistakes that could have affected the business negatively. The franchisee simply has access to the major assistance that is required.
Failure Rate Is Reduced
Due to the access to experience and required assistance for the smooth running of the business, a franchisee will be to avoid several mistakes that could have resulted in the collapse of the business.
In addition, the existing customer base is a guarantee that the products that will be produced will be sold because of the already existing buyers.
There is access to a loan which makes the funding of the business easier.
Access To Reduction In Cost Of On Supplies
Another benefit is that a franchisee can get more for less. This is due to the network of the franchise having the privilege of buying in large quantities directly from the producer which gives the opportunity of purchasing at a lower rate.
This advantage, in the long run, will result in a lower cost of goods and more profit.
Access To Developmental Programs
This is another privilege that some franchisees enjoy from the franchisor. Some franchisors offer training programs to their franchisees to help them have a detailed knowledge of what the business is all about before even setting up the business.
Access To Experienced Workforce
Franchisees are sometimes provided with experienced hands that will help to speed the progress of the company via a reduction in the risk, increase in production, and many more.
Things To Investigate Before You Buy A Franchise
Purchasing a franchise might be the best way for an individual to start as a business owner due to the several opportunities that await such a person some of which have been listed above.
Despite all the listed benefits, an individual must take deliberate steps to take some important factors before accepting to purchase a franchise.
These factors are crucial that if ignored can make a franchise business a regrettable one.
These factors are as follows;
Seek Professional Advice
Before embarking on the purchase of a franchise, you must find out from professionals for you to access the necessary information for clarity on every grey area regarding franchising.
Understand The Disclosure Statement
From the disclosure statement, you can access the different franchisees that you can easily speak with to gather some information and advice. You can learn from their experience and also avoid some mistakes they made.
Ask Question Relating To Franchise Agreement
Don’t assume to understand the franchise agreement when you don’t. Make sure that you understand its content because it’s the contract that binds the franchise contract.
It states the period that it covers, the area or location the franchise will be carried out, rights and obligations, and many more.
In addition, you must understand the effect of the agreement after it elapses.
Know The Financial Risk Involved
Since you will be assigned to a particular location, don’t assume that the response from customers will never be the same and other environmental factors will likely not be the same. It is therefore important that you study and understand the operations of the business in your area of operation.
Know the financial cost of venturing into the franchise agreement along with other costs that will be incurred to make the business a success.
Steps To Owning A Franchise
If you are currently reading through this article, it implies that you are planning to embark on franchising to become your boss.
To own a franchise, the following steps should be taken.
Identify A Suitable Franchise Concept
From the list of franchise businesses that are available for sale on franchiseFORSALE.com, find out the one that best suits the resources available at your disposal.
Submit Application Request
Before submitting the application request, carry out a thorough search by first choosing from different categories of franchisees companies.
Franchise Disclosure Review
The disclosure document will be studied together by the franchisor representative and franchisee to know how the opportunity will be explored.
The Franchise Disclosure Document
This document explains the relationship between the Franchisor and Franchisee and it is essential to help you have an understanding of the franchise fees, model, and commitments compiled in the Franchise Agreement.
Each party’s right is clearly defined with the expectations plainly stated.
The franchisor will have to provide you with the necessary training that you will require for startup and other support will also be provided.
Franchise Due Diligence
Here, ensure you have an adequate understanding of the Franchisor, its operations, industry, and the support it provides to its franchisees. Also, make sure you are well prepared for the interview because that’s the determining factor of you being qualified.
Once you can scale through the necessary process, you will be allowed to own a franchise and become a boss of yourself once the Franchise agreement is signed.
Common Terms Used In Franchising
It is important to know some of the jargon often used in franchising. Here is a list of a few.
- Franchisor – This is the owner of the brand name and who is willing to give licenses to different franchisees.
- Franchisee – An individual is given the license to run or carry out business activities under the trademark of the franchisor.
- Franchise Fee – This is the amount received by thee franchisor in exchange for the license issued to the franchisee.
- Initial Investment – This is the amount a franchisee is expected to provide to be used to et up the franchise business,
- Royalty Fee – Payment made to the franchisor periodically by the franchisee. It could be monthly, yearly, or any agreed period.
- Area developer – This has been issued the license to set up multiple units of the franchise within a given location.
One of the reasons many businesses fail is because of the challenges that come with building from scratch which is often but not an easy one. Some start-ups may survive the first year but many hardly make it to the third year.
By knowing what it knows all it takes to own a franchise: which has been clearly explained in this article, the journey of owning a successful business venture has been established. So go ahead and franchise Now