Franchise is basically a type of license which grants an access to the franchisor’s business knowledge and processes and trademarks and also allows the franchise to sell a product or services under the name of the franchisor’s business. For the exchange of acquiring a franchise , the main franchisee has to pay a start up fee to the franchisor and also a annual licensing fees which is more important than anything.
How does a franchise actually works?
When a business tries to or wants to increase its own market share or its reach on a very low costs, then and there it started franchising its product and brand name in the market for the better growth in the future. It is fully a joint venture between a franchisor and a franchisee they deal up with the all business related things and makes a way to promote it in a large scale. The franchisor is the actual and the original business if you see. It actually sells the rights to use the name and the idea of the particular business , and the franchisor buys these rights to sell the goods and services of a franchisor under a trademark basically.
I think franchise is the best option for any of the entrepreneurs to give a good start to there business more commonly when they are entering in a highly competitive business industry such as fast foods and all. One of the best advantage of a franchise is that you can easily do a business in under the best business brands by just having or using there names and you don’t have to think of getting or having a name for your own business to reach out to the customers.
What are the pros and cons of a franchise?
See, there are quite advantages in investing in a franchise but also there are some drawbacks which we should not avoid. You know a franchise always comes up with some tested products and services and also sometimes comes with huge brand names and recognitions. If you are a Starbucks franchise then you have to make or come up with a decision on what product to sell in the market and how will you give a proper layout to your store and also how you will design a uniform for your employees. These few things you have to have in mind while you are in a franchise. In some cases few of the franchisor’s offer financial planning and training to the list of suppliers who have been approved.
In this cases disadvantages also include a start up cost as well as the royalty cost sometimes. By taking the Starbucks as an example the estimated amount which costs to start a Starbucks franchise the amount which gonna come up in the range of about $2 million to $3.1 million. As we all know that the franchise has to pay the ongoing fees to the franchisor in the form of percentage of sales and revenue in later stage. The percentage can depend of the industry.
For some of the rising brands there are someone who unwantedly publish inaccurate information and try to boast about rating and some rankings and rewards which are not importantly required to be proven all the time. So, in some of the cases a franchise can provide a high amount in dollars and also a low value.
Franchisees sometimes also lacks control over the creativity with their own business. There are some other factors which also puts an impact over the businesses are such as the poor locations and management which is considered as one of the main possibilities.
The rules and regulations of a franchise.
There contracts are more complex and varies for each and every franchisor also a franchise agreement basically includes three types of payment methods to a franchisor who owns it.
1. The franchisee must purchase or buy all the rights and the trademarks in the form of a fee from the franchisor.
2. The franchisor will receive payments for providing proper training and business services.
3. The franchisor will receive the ongoing percentage of the current operation’s sale.
A franchise contract is temporary and it does not basically signify the ownership by a franchisee. By depending on the contract the franchise agreement basically lasts up tp 5 to 30 years with some of the serious penalties.
The actual history of the franchise.
The franchise business has its own storied history in United States. It was in the mid 19th century when two of the quite known companies have developed an organizational and marketing and the distributing systems which are recognized as from the forerunners to the franchising. These business structures are basically developed for the response of the high volume production and allows to sell there reapers and swing machines to a domestic market.
You know the first food and hospitality franchise were developed in early 1920s and in 1930s. And Howard Johnson Restaurants have opened there first outlet in the year 1935 and expanded rapidly the restaurant chains and the franchises which clearly defines the American food market till this date.
You may also be interested to know that there are more than 790,000 establishment of a franchise in the United States right now which contributes about $400 t0 $500 billion to the economy. In the U.S. food sector there very much well known franchises which also includes tons of known brands in the market.
How you can start up a franchise?
See the best idea for researching this is simply the International Franchise Association. It is a industry which basically trades the association for franchising and also have some resources through which you can easily get started to this process. You can easily find out about IFA and can easily visit there website for more.
Starting a franchise company is not that easy process that it look like. There are “N” number of requirements in which you have to meet up properly. They are:-
1. The Legal Requirement:-
In this all you need to do is to prepare a standard document for your own franchise operation. This document is generally called the UFOC which actually required all companies, by the FTC ( Federal Trade Commission) if they want to offer a franchise anywhere in United States. And in the addition there are number of other individual states which have the registration requirements you must have to go through it if you want to offer the franchises in those particular states and also you need to have the attorney of the franchise if you want to meet up with the legal requirements.
2. The Accounting:-
In this you need to prepare an audited financial statements for to start a franchise company. This is mainly one of the major requirements under the legal section and you will not be able complete your legal until or unless you have your own statements audited. You need to have some of the experienced and powerful accounts to produce these audited statements which could also advice you on the structure of your own businesses. You have to make it sure again and again that you are having someone who has an experience in operating all the franchise arena.
3. The Systems:-
The main part of any franchise business or a company is its systems. All you need is to develop a system which a franchisee will use to run its own business very successfully. And also you need to start a training program which will be able to teach a new franchisee whatever they wanted to know to be a good operator. You also have to formalize some of the market plans which a new franchisee will use to get its customers into its unit. Systems are all important for any franchise enterprise.
You know the satisfaction of building up your own franchisee company is immensely incredible but also its price which you have to pay till you reach the goal. Just make this clear that the amount you will pay is before you start this process.