Franchise 101
How does it work?
In exchange for an initial fee and a share of the revenue earned, the franchisor:
- Grants the franchisee the right to use his brand system
- Provides on-going support and guidance
- Provides certain operating tools
- The license (franchise agreement) is granted for a defined geography and specific period of time
- The franchisee agrees to operate the business in accordance with specific performance standards
Franchise Strength
The franchise sector has been expanding at a faster pace than the overall business sector in recent years. According to the International Franchise Association (IFA), from 2001 to 2005 the output of franchised businesses grew by more than 41 percent, while the economic output of all businesses grew by only 26 percent. By combining business ownership with a well-known brand name, experience and an established franchisor, franchisees and franchisors form a unique, mutually beneficial business relationship.
Benefits of Franchising
Owning a franchise offers most of the benefits of traditional business ownership with far less risk and provides additional aspects to assist with success. By buying into a franchise, you have the immediate backing of a recognized brand with a proven track record and business system. Franchise ownership provides:
- A proven idea for higher chance of success
- Reduced risk of failure compared to starting up an independent business of same type
- Name recognition and acceptance
- Corporate marketing support
- Corporate purchasing and negotiating power
- Training and operational support from experts in the business
- Access to others in the same business, their knowledge and experience
- Favorable view of franchising by lenders, as risk is reduced in a franchise system
- Ease of selling your business when you choose to, due to all of the above.
What are the risks?
Franchising is a commitment of your time and resources. You need to carefully consider questions such as: What would a typical day be like? Are you cut out to be your own boss? Are you good at delegating / supervising? Do you have the financial resources to live on while the franchise gets off the ground? Can you follow a system?
What can Franchising do for You?
Franchising means being in business for yourself, but not by yourself. Whether it's accounting and financing, advertising and public relations, personnel management, purchasing, or inventory control, franchisors are there to provide “hands on,” one-to-one assistance. While franchising does provide opportunities, it does not create miracles. Franchisees combine knowledge and resources with entrepreneurial drive and spirit to form a business relationship unique to franchising. Franchising is a field of expanding economic opportunity in which each and every person can play a part based on talent, initiative, and dedication.
To learn more about franchising, visit the International Franchise Association (IFA) website: www.franchise.org.