Becoming A Franchisee (Owning Your Own Business)

There are various ways to be an entrepreneur. You may decide to start your own business or by buying an existing business(Buy In/Buy Off). You can also inherit a business. This could be from your parents, friends or family. Another way to own a business is to be hired to be a professional manager in a small business or you may franchise a business.  Among the list above, this article will focus on Franchising as a path to be an entrepreneur. To be a Franchisee, you need to franchise a business. 

WHAT IS FRANCHISING

Franchising can be defined as a business agreement in which a company (the franchisor) already has a successful product or service. With this, they grant others (the franchisees) the right and license (the franchise) to sell a product or service and possibly to use the business system developed by the company in exchange for an initial franchise fee and an ongoing royalty.  Franchise Definition Source: It is a system of distribution in which a series of individually owned businesses operates as if they were a part of a large chain.  In most instances, the franchisee is granted an exclusive right in a specific geographical area. 

WHAT IS FRANCHISE

A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his resources.” – Definition by International Franchise Association

WHAT IS FRANCHISING

Franchise – is a contractual relationship (Right / License) between the franchisor and franchisee Franchisor – the concept innovator who grows by seeking partners Franchisee – the business person who wishes to operate the concept in a local market

GROWTH OF FRANCHISING

•Home markets saturated – attractive opportunities overseas

•Lack of/relaxation of regulations in most countries

•Expansion of international trade

•Exposure to international media

TYPES OF FRANCHISING

•Trade name franchising: an agreement that provides to the franchisee only the rights to use the franchisor’s trade name and/or trademarks (e.g. Hertz Car Rental)

•Product distribution franchising: an agreement that provides specific brand name products which are resold by the franchisee in a particular territory (e.g. car dealerships)

•Business format franchising: an agreement that provides a complete business format, including trade name, operational procedures, marketing and products or services to sell (e.g. McDonald’s, KFC)

BUSINESS FRANCHISE FORMAT

SUBWAY outlet in Australia SUBWAY outlet in France

SOME FRANCHISE ENTRANTS HAVE COMMON CONSIDERATIONS OF FRANCHISEES

•Experience and profitability of other franchisees

•Existence of competition

•Capital required

•Demands of the franchisor, e.g. income projections, license fees, royalties, etc

• Thorough due diligence of the franchisor

• Choosing the right location

• Are you prepared to give up some independence of action to secure the advantages offered by the franchise? 

ADVANTAGES TO THE FRANCHISEE

1. Proven product or service acceptance (Global Identity)

2. Marketing expertise (Cross-fertilization of ideas)

3. Technical and managerial assistance (training)

4. Opportunity to own a business

5. Quality control standards

6. Ease of entry (Rides on the back of an already established market)

7. Opportunity for growth (Reputation Capital)

8. Enjoys Economies of scale (cost advantages, regional adverts, ROI on sponsorships etc) 

DISADVANTAGES TO THE FRANCHISEE

1. Franchise Fees and profit sharing

2. Restrictions of freedom (Limited Product Line) / Franchisor often sets policies

3. Overdependence (Loss of Control)

4. Unsatisfied expectations (Training, support etc)

5. Termination of the agreement (Least Breach)

6. Performance of other franchisees

 THE FRANCHISE AGREEMENT

• The franchise agreement or contract is the final stage in becoming a franchisee.

• At this stage, an experienced lawyer in franchising is required.

• The franchise agreement contains all of the specific requirements and obligations of the franchise.

• Obligation and relationship of both the franchisor and the franchisee must be clearly defined

OUTTAKES

• Legal and commercial arrangements concerning the successful business of a franchisor

• Use of franchisor’s trade name, format, system and/or procedure under license

• Means to raise capital and expand quickly

• Assistance to the franchisee – Marketing, management, advertising, store design, standards specifications

• Payment by franchisee by way of royalty, license fee or other means

• Research is the key to successful franchising

Source: NANA KOJO DADZIE 

Check Out the Article What is Entrepreneurship? for basic information to start your adventure.