| Franchising Defined
Before deciding whether a franchise is the right fit, it is important as a possible business owner to first understand what a franchise is. According to Webster's Encyclopedic Unabridged Dictionary, “franchising is permission granted by a manufacturer to a distributor or retailer to sell his/her products and the territory to which such permission extends.” A franchise is basically a professional relationship between an investor, the “franchisee”, and a company, the “franchisor”. A contractual agreement is developed between the two parties wherein the franchisee pays a fee to the franchisor, and then receives the right or license to own or operate their own business based on the business concept of the franchisor, while utilizing their trademark. The franchisee markets the company's goods or services in a particular territory following the franchisor’s established business format . A franchisee pays not only for use of the company’s trademark and business format, but also their expertise and assistance in getting their business up and running.
After paying an initial franchise fee, the franchisor will help the franchisee start their business. They will train the franchisee, assist in selecting and designing a site, and advise in areas like management, marketing, accounting, and personnel. The franchisor may also supply inventory ordering information, as well as advertising support. Aside from the start-up fees, the franchisee must pay ongoing royalty fees, advertising fees to contribute to national advertising campaigns, and other various fees to the franchisor.
Getting involved in a franchise arrangement is basically purchasing into a long term business relationship. Franchisors may offer ongoing support for the franchisee in the form of technical assistance, ongoing seminars and training sessions, monthly newsletters, and annual conventions. Ongoing training and support not only ensures greater likelihood of success, but also ensures desired uniformity and sustaining of standards for the franchisor. The amount of continued support from the franchisor will vary from company to company and will likely be predetermined prior to franchise commencement.
In order to effectively run the franchise, the franchisee must follow the rules and regulations as set forward by the franchisor. The proven franchised system of doing business must be maintained. The key factor of a franchise relationship is that the risks involved in many new business operations are reduced because of the safety net the experience, format, and support the franchisor provides. According to the International Franchise Association, “you are in business for yourself, but not by yourself.” |
