Are you interested in franchising then you should
understand the business. The use of an established business model for an agreed
period is what franchising is all about.
The business format reduces liability and investment cost
while leveraging on an organized structure. The template works because the franchisee
has a direct stake in the success of the business
Franchising is regulated by state laws and legislature. Startups
for franchised chains differ according to contractual arrangement, industry and
company policy.
There are many business models such as commercial
cleaning startup cost of $11,000-$35,000. Others are fast food chains $900,000-$2,000,000and
convenient stores/gas stations gulping $2,000,000-$8,000,000.
The
Business Model
The business model for a franchise is exclusive, sole or
non- exclusive arrangement. The entrepreneur looking to become a franchisee has
a few things he needs to do.
Once accepted as a franchisee you go through some
training. The mother company also provides support and promotional material.
The franchisor collects several fees and also earns a
percentage of your sales. So they have a vested interest in the success of your
enterprise. The fee might be a single lump sum or front end fee.
Branding
and Trademark
The parent company has gone through the rigors of
establishing their brand names. The franchisee benefits by paying a royalty to
use the trademark.
Fees
and Contractual Agreements
The business models and structures differ according to
industry and company. Franchisee fees range from 5.5%-10%. Some include a portion
and marketing fee of 2.5%. The fees are usually calculated based on gross
revenue from sales.
Franchise
Brokers
If you are interested in becoming a franchisee and you
don’t know how use a franchise broker. There are many industries that offer entrepreneurs
franchise arrangements.
Major industries are fast-food establishments, hotels,
hospitals, and gas stations. Other business models are convenient stores,
cleaning agencies, restaurants and truck stations. Franchise brokers aid
franchisee find franchisors in the industry they prefer.
Different
Types of Franchising
Franchising is getting more dynamic each day with new
exciting models that don’t conform to the mainstream format. We now see third
party franchising, social franchising and event franchising. Another interesting
template favored by many is the home based franchise
The
Home Based Franchise
Home based franchises are very popular because of the
simplicity, small financial involvement and success rate. The franchise
duplicates successful home based businesses.
The entrepreneur
needs to overcome a few challenges such as finding customers. Using a well known
trademark although helpful is no guarantee for sales or success.
Logistics
and Transportation
Logistic and Transportation Company franchising provides
valuable service to companies. The business is very lucrative and needs lots of
inventory management and shipping. Third party logistic franchising is just one
among new franchising models that work.
Television
Program Franchising/Syndication
It is not uncommon to see popular television programs shown
using local content in many countries.
The investor buys the franchise and recreates the show using local
content.
They use the trademark and branded name. Franchising
event is another one gaining momentum in the industry. Major forums, trade
fairs, symposiums and seminars use franchising.
Obligations
Franchisees are required to conduct business according to
the brands provisions. They are also mandated to protect the trademark and
business concept.
The franchisor demands certain high standards because
they carry the trademark of the parent company.
Everything is regulated
including office design, colors and staffs wear. The franchisor provides the
equipment, technical skills and raw materials.
The core arrangement depends on the business structure of
the franchisor. An obligation by the franchisor includes adequate training and valuable
resources to his franchisee.
Franchising
Code of Conduct
1. They need to act in good faith.
2. There
should bee transparency between both parties.
3. There
are serious penalties of breaches of code
4. Full
disclosure is required
5. There
are laws that protect intellectual property, trade practice and contractual
agreements
6. The
franchisee is give the right to use the franchisors trademark and colors
7. Remittance
of payment and royalty including permits are captured in the contract
8. Some
countries allow some tax deductions
Guidelines
for Franchisors
1. The
franchisor should provide training for franchisee
2. They
are liable to suppliers
3. They
need to identify principal officers and company structure
4. They
need to provide instructions on use of trademark and permits.
5. Provide
a confidentiality agreement
6. They
are at liberty to terminate any agreement
7. The
franchisor needs to provide full details about franchisee fees.
8. Mandatory
registration on a public registry
9. They
need expert legal advice
More disclosures are summary of business history and description
of local market. The franchisor can include a two years financial statement.
The franchisor should create a comprehensive list of
networks, renewals and terminated contracts. They need to write and register
the franchise agreement.
Franchisors in the United States of American are mandated
to provide Franchise Disclosure Document to
franchisee.
Why
Franchising Works
Franchising works because it a god way to get more
capital and creates a large distribution chain. The franchisor gains because he
still has full control of his establishment. Using this business model rapidly
expands the business with little risks or capital involvement.
Conclusion
To succeed you need to develop a business plan. The
franchisee needs to negotiate the license carefully and purchase discounted
equipment.
Use a lawyer to
unravel the document to see full disclosure or any hidden fees. The problem
with franchise agreements is that they don’t have warrantees, are unilateral
and favor the mother company.
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