Franchising = Partnership
If you are entering a franchise agreement, you are either the the franchisor or the franchisee.
Franchising is essentially an agreement of partnership between a business and an individual, or group of individuals, to use and utilise existing systems and brands.
It should be mutually beneficial
This partnership should be beneficial for both the franchisor and the franchisee.
For instance:
The franchisor sees their brand expand into new markets by franchisees using the franchise model. This is done at a lower cost and with less risk than it would be if they did it as an individual enterprise. They also see costs that would be theirs absorbed by the franchisee and gain income in royalty fees.
The franchisee benefits from an existing brand, that often has a proven business system in place and may also already have a brand loyalty and an existing consumer base. They are also entering the world of business alongside those that have worked in the chosen industry, so risk is often vastly reduced.
Franchising is About Give and Take
As discussed above, when done correctly, franchising is mutually beneficial and this is enabled through compromise and through carrying out the terms of the franchise agreement signed by both parties.
Like all healthy relationships a franchise partnership is governed by the principles of give and take.
What the Franchisee Offers the Franchisor
- Franchise Fee - a one-time franchise license fee paid by the franchisee at the start of the franchise agreement.
- Renewal Fees - a recurring fee paid by the franchisee typically every 5 or 10 years to renew the franchise license.
- Royalty Fees - an annual fee based on a percentage of the franchisee's unit profit that is paid to the franchisor.
- Commitment - a legal commitment to distribute the franchisor's product or service and operate in accordance with the franchise agreement.
What the Franchisor Offers the Franchisee
- Distribution Rights - the right to market a product or service using the trademark or trade name of the franchisor.
- Business Model - the right to market the franchised product or service using the operating methods of the franchisor.
- Training - online or in-person training for the franchisee and sometimes key staff members prior to opening.
- Set-Up Support - support with the location selection, fit-out, first stock, opening announcements and launch of a new franchise unit.
- Ongoing Support - ongoing support with day-to-day business operations, stock, sales and marketing promotions etc.
Every Franchise is Different
It is recommended to examine each franchise opportunity individually, take nothing for granted and ask as many questions as you can before proceeding further with any opportunity. When you are close to the point of reaching a franchise agreement be sure to engage legal and financial advisors to see you safely through to the other side.