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>> What is Franchising?

A franchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location.

Franchising is a business model that combines the best aspects of sole proprietorship and Corporate India. It can be described as a "hybrid" model that fills the gap between working for somebody else and working for yourself.

Franchising has become one of the most popular ways of doing business in today's marketplace. If you are thinking about buying into a franchise system, it is important that you understand exactly what is franchising, how franchising works, what fees are involved, and what is expected of you from the franchise company.

According to the International Franchise Association, "Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: 1) the franchisor, who lends his trademark or trade name and a business system; and 2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system."

For many franchising's greatest appeal is the opportunity for an individual to control their destiny and secure their future. There is usually a much higher likelihood of success when an individual opens a franchise as opposed to setting up a business from scratch, since a proven business formula is in place. The products, services, and business operations have already been established.

In recent years, the franchise model has caught on as an attractive business opportunity for entrepreneurs and investors who buy many units at once; or who buy the rights to develop a geographical area or "territory" and develop a certain number of units within a specified time frame. These multi-unit owners, area developers, or area representatives (some of whom also recruit new franchisees and support them within their territory) are part of a growing trend in franchising today.

"Multi-brand" franchisees are also on the rise. These franchisees operate different brands under a single organization, creating efficiencies, economies of scale, and market penetration to increase sales and profitability. The primary reasons successful franchisees seek additional brands are 1) they have "built out" their territory for their current brand, and/or 2) they are seeking a new, complementary brand to smooth out the ups and downs of business or seasonal cycles. Franchisors, too, are combining several different brands under one roof, and frequently offer discounts to current franchisees who take on a second (or third) brand.

"Co-branding," in which a franchisee operates two brands from the same location, is another recent trend. Co-branding saves on real estate or leasing costs, allowing more profit per square foot and often balancing out day parts (breakfast, lunch, dinner). An increasing number of franchisors now offer several different brands, and often provide incentives to franchisees to co-brand.

Legally, franchisees do not "own" the franchise they "buy." They are granted, or awarded, a license that gives them the right to operate and manage their franchise business. However, franchisees do own the assets of their company, and as long as they adhere to the franchise agreement have specific rights under the law of the land.

There are many advantages to buying a franchise. Some of these advantages are:

  • Corporate image - The corporate image and brand awareness of the company is already established. Consumers are always more comfortable purchasing items from a familiar name or company they trust.
  • Training - The franchisor usually provides extensive training and support to the franchise owner.
  • Savings in time - Since the franchise company already has the business model in place you can focus on running a successful business.
If you are thinking about buying a franchise, do your homework, research the company, and you should consult with a franchise consultant or franchise attorney before making a final commitment.

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