Franchising Principles

What is franchising? Well, to sum it up, franchising is a business opportunity that lets you have a part of the earning potential of a well established business or a product brand that earns for itself without much effort on your part in promoting it. It combines the functioning principles of sole proprietorship with an established brand name or a company. Franchising is buying into the credibility of a company's reputation, giving you the chance to earn for your self the same amount of financial opportunities. Franchising can not be considered as an industry as most people think, but rather it is a method that can be applied to almost everything in every aspect of the business industry. 

Franchising falls on two categories, namely products and brand or trade name franchising. Basically, a franchisee buys into the rights of a name of a trade mark that gives them the rights to use it and eventually, earn from it as well. This type of franchising is called “Business Format Franchising”, which involves a working principle between the franchisee and the brand company or the product that has made an agreement with the franchisee, with giving a full range of support to them. These full range of support may include products, man power, marketing and sales support and other operations related interests that will help the franchisee to run their business accordingly to the policies of the franchisor.

The International Franchise Association stated that franchising is a means of effectively distributing products and services. The franchising system involves two sides, the franchisor, which can be a person, product or business entity that “lends” their trademarked product or services including the business system that they have efficiently used in promoting their products. There is also the franchisee who pays a fee or a royalty for using the franchisor's name brand and business operating system. This gives the franchisee the right to extensively use the franchisor's product, brand name and business system for their own endeavors and interests.

Franchising is a consolidated networking effort and succeeding on this venture, means that the franchisee must operate and maintain a profitable franchised business establishment for a long period of time, before fully benefiting from the franchisor's name and products. Franchising's appeal caught on to those people who found the opportunity to have control over the way on how they can make a difference for themselves in regards to planning their future. In the early days when franchising was still a young concept, it was considered as a way of business minded individuals to have an opportunity to buy their own job such as a home repair service or a small sandwich shop, enabling them to come in everyday and operate the business by themselves.

Today, franchising is now considered as one of the most profitable business opportunities that people can invest their money into, as there are no limits as to the number of franchises that you can buy as long as you have the money for it. There also have been new variations in franchising such as “Multi-Brand” franchising that deals with a whole assortment of products and services all under one roof. These types of franchising are exclusively given on an international basis in which other franchisees from other countries are given a distributing right for these products on a national level in which they are the ones who distribute it in their region of exclusivity. 

 

A franchisee is given the right to distribute and sell a franchisor's brand and product as long as they comply with the franchisor's condition on the aspects of exclusively using their products and re-supplying their inventories directly from the franchisor's distributor only. A franchisor may or may not provide the operational man power for the franchisees branch or establishment provided that the franchisee follow the business model that the franchisor has set as a standard operating policy. In regards to keeping tabs on the accounting side of the business, a franchisee can hire their own accountant to record all business transactions provided that it meets up to the standard working agreement with the franchisor's terms. Accountants hold a very critical position in regards to this type of business arrangements and tips on how to become an accountant can be seen here.

Franchising seems to be a fool proof way of earning compared to similar businesses that offer the same method, although some businesses do not guarantee any security in regards to such possibilities as bankruptcy. The earning potential that franchising gives it's franchisee's can only be realized after a few years into operation as the franchisor will eventually get a large amount from the loyalties for each month that you operate. This amount being taken from the franchisee can be justified as the franchisor will be the one who takes care of almost 80% of the operating aspect of the business such as advertising, promotion, product support, employee hiring and a few more other things. All the franchisee must do is look over the daily operation. 

Franchising fees may cost a few thousand dollars to as much as a hundred thousand dollars, depending on the brand or product that you wish to franchise. Added to this, monthly royalties may run from 5% to 8% a month with the addition of promotional costs such as advertising and marketing which may mean an additional 1% to 3%, bringing it to an average of 6% to 11%. On a legal point of view, franchisees do not own the franchise that they have bought but merely rent it from the franchisor. In return, the franchisor grants or awards a license that gives the franchisee exclusivity to use the franchisor's brand name and products respectively. 

Given this, they are allowed to manage and operate their franchise business without owning any part of the franchisor's assets. The only assets that the franchisee owns are their establishment and everything that they have capitalized for setting up their place of business. Franchisees can form their own associations that include other franchisees that are also part of the franchisor's coverage of exclusivity and can participate in a corporate wide decision making in regards to the franchisee's business interests regarding policy making decisions.