You are an unhappy office staff, toiling more than ten hours a day, and noticing playing by the rules does not give you what you really wanted and it only made you old and busy.
Going entrepreneur came into your mind. But, with all those news about traditional businesses closing left and right, the terror stop you from taking action.
However, you find in the newspapers, in the TV and in the internet, firms offering franchising. Maybe this is the type of business for you. And you are intrigued. You ask yourself, what is franchising, anyway?
This blog post will tackle the definition of franchising.
Franchising is a practice where an already established allows another entity to use the company’s already successful business solution. The franchisor (the company that provides the business solution) and the franchisee (the entity that uses the business model) enter into a contract to use and capitalize on the companys successful business model and/or its existing brand awareness (most often called Goodwill) for a faster return of investment.
In return, franchisees expend two payments in general. First is a one time investment, called the franchise fee, and the second is royalty fee, which is a recurring expense, for the continuous usage of the business model, advertising and training costs. Royalty is usually 3-10% of gross profit.
Franchising is a interconnected network of mutual business relationships that permits a number of people to share:
– A brand recognition
– A successful method of doing business
– A proven marketing and distribution system
Thats pretty what much franchising is.
One common misconception about franchising is the phrase, “I am buying a franchise”. You are not buying; you are investing onto the business. What you will own are the physical assets that are needed to act upon the franchise, like the building and equipment.
For a business to work as a franchisor, it must have a good track record of being profitable and the business model it employs is easily duplicable. Otherwise, that business is not suitable for franchising.
What’s so great about franchising?
For the franchisor, the company can grow and gain more chains while lessening the traditional risk and liability of doing so. It is also a great way to gain more brand recognition and reputation.
For the franchisee, they are capitalizing in an already proven business model and recognized brand. In fact, a franchising business is 90% proven to be successful. With a success rate like that, who can go wrong?