We
have been told from the time we were four
feet tall, if we work hard and save our
money, we will achieve this elusive dream.
Some of us believe that the term “American
Dream” simply means financial success
in one form or another. We believe however,
that most interpretations include owning
one’s own business.
Franchising
is by definition, simply a means of distribution.
Presently, the most common type of franchise
is the “Business Format” franchise. Under
a business format franchise, the Franchisor
(Owner of an original business name/concept)
grants the Franchisee (Owner of a secondary
business operated under the name and structure
of the original business) a license to
operate the franchise as an on-going business
enterprise. A franchise agreement allows
the Franchisee to trade under the trademark
and business model of the Franchisor.
The Franchisee is given access to the
entire business package, comprised of
all the components necessary to allow
an un-trained person, (with on-going support)
to operate the business successfully.
In essence, a Franchisee provides his
or her Franchisor venture (start-up) capital
in exchange for the opportunity to sell
the Franchisor’s products and/or services
under the same trademark. Ideally, the
Franchisor is an individual whose company
has created a product and/or service that
has proven to be in demand.
Franchising then provides the Franchisor
a viable system to distribute its products
and/or services. However, in the early
stages of business, the Franchisor is
usually a company lacking the financial
wherewithal and/or manpower to develop
and manage its own corporately run operations.
Therefore, one of the company’s alternatives
is to franchise its concept. Assuming
that the legally complicated process of
franchise registration has been dealt
with, making their franchise opportunity
available is really quite simple. The
Franchisor will advertise the opportunity
for someone to acquire franchise rights,
otherwise known as the rights of becoming
a distributor under the company’s trademark
and business model.
An individual possessing the appropriate
qualifications and drive to succeed provides
the Franchisor with investment capital
commonly known as the Franchise Fee. In
exchange, the Franchisor provides training,
support, and grants the rights to sell
the same products and/or services. The
Franchisee will usually pay an ongoing
Royalty Fee, which is most commonly a
percentage from the franchise’s gross
sales.
The Franchisee will also have to adhere
to a code of procedures to ensure a uniform
process and image. What should make this
a win/win scenario is the fact that the
Franchisee can own and operate a business
with a proven business system and earn
a very respectable income. The Franchisor
can gain tremendous wealth and expansion
capital from the royalties it collects
from its Franchisees and franchisees can
enjoy one or multiple successful business
enterprise(s).
Ideally, this means the Franchisor will
provide superior on-going support. Since
Franchisors depend on its Franchisee’s
gross sales, they want to encourage and
support their Franchisees in order to
generate substantial royalty revenue.
A Franchisor can ensure it receives a
large sum of royalties by providing adequate
support to the Franchisee’s within its
system, continuing to be innovative in
their marketing, and by constantly improving
their products and/or services. This is
what franchising is all about and what
makes it so attractive to investors and
entrepreneurs all over the world.
Franchise
Facts
