What is franchising in business? – Definition and processes
Tips / 16.03.2022
So, you’ve made your decision – you’d like to be your own boss and run your own business. There are many advantages to this but if you’re on the road to starting your own business, you’ll face several choices: do you start your business from scratch, do you purchase an existing business or the best of both worlds: do you get into franchising?
If this is a somewhat new concept and you’d like to find out more about what franchising is and how it works, then this post is for you.
Table of Contents
A franchise is not an ordinary business, it’s a very specific type of company that starts out with the franchisor, who owns the business and who’s seeking to expand it in the same form, function, and structure as the original business.
This is where franchisees come in to purchase the licenses and rights to run the business in its original form all while ensuring that the brand name and trademark of the original business are respected with each action taken, as well as paying an initial fee and ongoing royalties for the right to run their business unit based on the original business in a specific location.
This is the gist of franchising’s meaning and if you’d like to imagine it differently, you might consider a successful business that expands into different territories but also offers the same standards of products and services to the customers.
Ultimately, the franchisee purchases the rights to offer these products and/or services under a trademark or brand name for an extended period of time – usually five to 20, or even 30 years.
Some of the most popular franchises around the world that are easily recognisable include McDonald’s, Dunkin’ Donuts, and others.
How does franchising work?
When you make inquiries about franchising and do your research, you’ll notice that there are thousands of franchising opportunities across the UK. You will need to be very specific about your interests and passions and choose a franchise to suit you and your personality well.
One of the first steps you’ll need to take when you’ve identified the niche of franchises you’d like to get into is to get hold of the franchise agreement. This will set out your duties, responsibilities, rights, and obligations as a franchisee.
Read this document well and once you’re done, read it again. Preferably with the help of a franchising consultant or an attorney to make sure you miss nothing.
These agreements are usually very detailed and cover everything you need to know about running your franchise – from the fees or royalties which you’ll be expected to pay the franchisor actively to the set of rules that will govern your relationship with the franchisor.
Also, consider speaking to a wide range of franchisees in your niche and ask them about their successes and challenges.
Once you’ve chosen your franchise partner, you’ll need to ask about marketing and advertising support, training support, customer relationship management support, and other factors to ensure you get the right help from your franchisor after you pay the initial franchise fee.
With that being taken care of, you can launch your franchise business in a specific location. Here’s where the hard work begins. This is where you’ll be offering either a product or a service to your customers and you’ll need to do this to the standards that the franchisor has set.
Anything below this means a potential disagreement with your franchisor and this is something to be avoided at all costs since you’re in it for the long haul.
In addition, ensuring high-quality standards across the product or service offering means that the brand name and franchisor’s reputation will be maintained throughout the industry.
The brand name and trademarks are some of the things you’ll be purchasing the right to operate under and since it takes years to build up, it’s something you’ll want to protect with your actions and service delivery.
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Types of franchising
If you think that that’s all there is to franchising, you’d be in for a surprise as there are various types of franchises you can choose from. Here are the main ones: product, manufacturing, and business, with the latter being the most popular types.
Product franchises are “when a franchisor gives a franchisee permission to sell a product using their logo, trademark and brand name”, while a manufacturing franchise involves the franchisor authorising the franchisee to “manufacture their products and sell them using their logo, trademark and brand name.”
Pros of franchising
Going into franchising comes with many advantages. Some of these include:
- An existing and successful business formula
- Market-tested products and services
- Established brand recognition
- Training and support
- Financial planning
- Approved suppliers
Cons of franchising
But the world of franchising isn’t all a bed of roses. Here are some cons:
- Possible high start-up costs
- Ongoing royalty payments
- Inaccurate information is being provided
- No or low franchise value
- Lack of control over territory
- No room for creativity in the business
- Financing could be scarce
Franchising is a long-term relationship between the franchisor and franchisee and the franchise business definition essentially means that you’re operating units of a business under a given brand for certain territories.
On the upside, a franchisee can stand to benefit from a wealth of tools, training, and support when they become a franchisee. On the downside, there are the inescapable royalty payments that you’ll need to cover.
Either way, it’s one of many types of businesses that you might consider for your future endeavors, which could turn out into something quite profitable over the long term.