SELECT YOUR LANGUAGE

Franchising is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and an initial fee for the right to do business under the franchisor's name and system. Technically, the contract binding the two parties is the “franchise,” the actual business that the franchisee operates. The practice of creating and distributing the brand and franchise system is most often referred to as franchising.

 

There are two different types of franchising relationships. Business Format Franchising, the franchisor provides to the franchisee its trade name, products and services, and the entire system for operating the business. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy, and business advisory support from the franchisor. The other is Traditional or Product Distribution Franchising, which is larger in total sales than business format franchising.

​

The main perk of investing in a business format franchising opportunity is the level of support you get from your franchisor.  Your franchisor will have a definitive training program to provide you with the skills you need to run this specific franchise. Beyond training, you will be provided with an operations manual that gives you all of the information you need to run your franchise on a daily basis. For some franchise brands, ongoing support includes marketing support, regular calls with the corporate office and a blueprint of proven processes to follow.

​

With the business format franchising, your franchisor will have more of a say in how you run your business each day, what goals you need, strive for, and the ways your business will change over time. If the idea of answering to a franchisor rubs you the wrong way, business format franchising might not be for you.

​

Traditional franchising, also known as product distribution franchising, is found most commonly in bottling, gasoline and automotive industries. Generally, they are only responsible for manufacturing and/or supplying the product. One of the benefits of a traditional franchising opportunity is you have more control over the product you will be selling because it will generally need pre- and post-sale service. This gives you the freedom to make necessary adjustments. You will also be able to act independently of other franchises and develop your own modes of operations. If your main motivation for franchising is to be an autonomous business owner, traditional franchising might be for you.

​

The biggest drawback of traditional franchising is the lack of support. Your franchisor will only supply you with the product. They won’t provide you with any training, operational systems, marketing strategies or ongoing support. If you are making your first attempt into entrepreneurship and desiring more support systems, a traditional franchising opportunity probably isn’t the right fit for you and your goals.

​

Make sure you select a franchisor that routinely and effectively enforces system standards.  This is important to you as enforcement of brand standards by the franchisor is meant to protect franchisees from the possible bad acts of other franchisees that share the brand with them.  Since customers see franchise systems as a branded chain of operations, great products and services delivered by one franchisee benefits the entire system.   Make sure you also choose to franchise an already successful business with a proven model to support franchisees to be successful as well.  Before you select any franchise investment and sign any franchise agreement, do your homework, understand what the franchise system is offering and what the royalty fees are and how long you will have to pay the fees.  You might also benefit from getting the support of a qualified franchise lawyer.  If the chain ends up selling or closing the business, ask what this will mean to the franchisee as well.  

​

Some franchises have low start up cost and fees and others have high start up costs, so make sure you look into what the cost will be for you.  Consider going into a partnership with family or friends to offset some of the costs to you.

​

Watch this YouTube video to learn more about the pros and cons of Franchising: 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

By Jason Torrents

​

Source: Franchise.org

​