What is a Franchise?
A franchise is a type of business that is owned and operated by an individual (franchisee) but that is branded and overseen by a much larger—usually national or multinational—company (the franchisor).
What is a Franchise?
The franchise is a license that allows the privileges and assets of a large company to be granted to a third-party company. In other words, Third Company as a representative unit sells its products and services under the brand of Big Company. Small businesses generally pay the Big Company for franchises as a privilege.
What is the Franchise’s devolution?
When a business wants to increase its market share or geographical access at a small cost. So it uses franchises for its products and brand. The franchise is a joint venture between a Franchise and an Independent Business under which the parent company will sell the privilege of using their brand and business ideas for a fee. Independent businesses will also be able to sell their products and services to the market based on the brand name and methods of the company.
It is a popular business way of entering new arrivals. For example, in competitive markets such as the launch of a coffee company like Dunkin’ Donuts, the brand of reputable companies can be used. One of the advantages of the Franchise Index is that thanks to the name and reputation of known companies. So You no longer need to spend money to inform your brand or products to customers.
History of franchise
Franchising began to blossom in the post-war 1950s and 1960s. Franchisors of convenience goods and services seemed to be opening on every corner. McDonald’s, Kentucky Fried Chicken, laundry services, dry cleaners, hotels, and rental car franchises flooded the marketplace.
One of the early franchise pioneers, McDonald’s, opened 1,000 units in just 10 years. Midas Muffler reached 400 locations, Holiday Inn grew to 1,000 locations, and Budget Rental Car topped 500, all during the same period.
Many franchisors had begun focusing more on the sale of franchises than on supporting and operating successful franchise systems. Others made misrepresentations in how they recruited prospective franchisees. There were other problems as well.
Provisions of Franchises
Franchise contracts are different for each brand company. The agreement provides small businesses with 3 payment methods for royalties. In the first method, he will pay it as a prepayment for the company’s rights and brand. In the second approach, the company is a brand holder and receives a certain amount in exchange for training, equipment, or business advice. The third method is that the company that owns the brand will receive a percentage of small business sales as fees.
It can be said that Franchise contracts are provisional like a lease, any right of ownership of a small business will be withdrawn. So according to the contract type, the Franchise Agreement will be concluded for a period of between 5 and 30 years and in the event of early violation or termination, very bad penalties will be for the business that has received franchises.
The Federal Trade Commission in 1979 in the United States used the Franchise Act, but each state has different laws regarding Franchise Business. This law is a clarification for the Franchise Buyer. It informs him of the risks, revenues, and limitations of joint investments with privileged companies.
This law will explain the information on the costs and legal questions of franchises. To make a reliable list of commercial merchants available to small business owners with a report on their financial performance. The law was changed several times under the previous name of the UFOC Directive. It was named the Franchise Document in 2007.
Different sorts of franchises
There are three major franchises:
1- Construction and Development Franchises
The permission to manufacture a series of products or services with the full use of the brand is left to other people. For example, many brands of food and drink are franchises.
2- Product Distribution Franchises
Only the right to sell a series of products or services using the logo without the continuous support of the business will be granted to others. In this type of franchise, there is a direct relationship between supplier and supplier. An example of this type of franchise is the brands of the gas station that only offer the right to sell their oil products to other people. In this type of franchise, other services will be owned by the owner of the privilege except for sale.
3- Business Franchise
These types of franchises are the most common. In this method, a trade contract is signed between the owner of the point and the person who wants the score, and therefore, the use of the brand, logo, and business model is awarded to the applicants. In this method, a large amount of payment is for the license-holders.
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Two other subtypes of franchises are also defined
1- Career franchise
In this way, a small business takes the privilege of a series of equipment and tools from a larger business.
2- Investment franchise
Some investors receive franchises that invest in a hotel or large restaurant.
Franchise advantages
1- Low refractive index
By using franchises you buy an idea that has given your exam back. Statistics show that Franchise businesses have a better chance of success than an independent startups.
2- Occupational Help
Franchises owners receive many contributions for their businesses. In fact, with the purchase of ready-to-operate franchises, items such as equipment, supplies, and instructions will also be for you to start your business. So you will get continuous training, management assistance, and marketing. For example, the Franchise’s business will benefit from the parent Company’s advertising campaigns services.
3- Purchasing power
Franchise’s business has the power of major Parent Company purchases, so the cost of buying goods and raw resources for Franchise’s businesses will be cheaper.
4- Fame
Most of the known Frantchais have an international and famous brand in which to buy it you will have faithful customers.
5- Profitability
Franchises are profitable businesses. Although buying credit for famous companies such as McDonald’s or KFC costs you a lot of money, but the rate of return on investment (ROI) will also be as high.
Franchise disadvantages
1- Firm rules
One of the basic disadvantages of Franchises is that you must follow the rules and strict instructions of companies with brands. In some cases, parent companies control their agencies to a certain extent. It may be very difficult for their owners. For the Franchise type of contract, the brand owner company can dictate to the owner certain conditions such as agency location, working hours, commodity price, advertising, decoration. In addition, the agency should use the products offered by the company that owns the brand and follow its reselling campaigns. The Parent Company’s argument for this level of control is that the customer should feel the same and the same in all agencies.
2- Current charges
In addition to the cost of franchises, you must pay a fee of your monthly income to the parent company as a fee. So sometimes the parent company will also charge you for other services such as advertising.
3- Lack of constant support
Some parent companies won’t help you to grow your business. Others will accompany you to some extent when you start and then put the burden on your shoulders. So they promise you the training force and side support sometimes, but this does not usually happen.
4- High purchase cost
You must spend a large amount of money to purchase a valid company right. For example, to buy franchises from MacDonald’s Inc., you have to have a total of $1 million to $2 million in investments.
5- High risk
If you have decided to buy cheap franchises you must take risks. In other words, the call for a brand to grant an agency is not a reason to ensure its success. Although some Franchisees may show acceptable performance. So they will never achieve optimal profit. In addition, in some cases, franchise sales were the company’s main business owner. Therefore, you should be careful in selecting and investing in companies that have brands.
Franchise & Start-up
If you don’t like working on other ideas, so you can start your own business. Setting up your own business brings you many financial and personal interests. At the same time, there will also be problems in attracting customers and selling your products.
In addition, the risk of private businesses going broke is high. For example, statistics show that 25% of private businesses face bankruptcy the same year, and half of the decline after 5 years. Only 30 percent of private businesses will survive on the market for up to 10 years.
To make your dream come true, you must work for your business for many hours without the help of marketing experts. Some managers choose a simpler method to start their businesses called franchises. It provides them with a sustainable, tested, and successful business model. Of course, some people also have very big ideas that require starting a personal startup. So try to choose a business model to suit your business needs.
How does a franchise create income?
In practice, franchises consist of three types of payments to the privileged. A person who wants a business privilege must purchase the rights under control or brand from the owner of the privilege in the form of the primary cost. In the second method, the privilege to provide training, equipment.
Consulting services by the privileged owner. The third method is that the owner receives a payment credit score as a percentage of sales or service from the person seeking a business privilege. In all three methods, franchises are a kind of income-generating tool for privileged owners.
