What is Business Franchising?
Franchising is a term that describes a particular way of doing business. Although there are various different types of franchise they all generally involve an arrangement in which an individual or group agrees to pay for the use of part or all of an existing company’s business brand and strategies. The franchising company is known as the franchisor while the buyer is known as the franchisee. Typically the franchise agreement allows the franchisee to use the brand name and sell the products of the franchising company in exchange for an initial fee and a regular share of the profits.
What types of Business Franchises are there?
The most common type of franchise is the business format franchise. This type of franchise agreement involves a broad relationship between the franchisor and the franchisee. In a business format franchise the franchising company provides training and ongoing support to its franchisees to assist them with running the business. A more basic type of franchise is a brand / trade name agreement in which the franchisor simply sells the rights to the use of their particular brand name.
What are the benefits of Business Franchising for Franchisors?
For the franchising company one major advantage is that it can be a route to quicker expansion of their business. This is because the franchisee provides much of the capital needed to open a new branch of the business via their franchise fees. Franchisees will also tend to be more committed to managing the business than a regular employee would be as having invested their money there is more incentive for them to be successful.
What are the advantages of buying a Business Franchise?
The advantage of buying a franchise is that by investing in an existing company much of the work usually needed when setting up a new business has already been completed. Franchisees can gain confidence from buying into a known brand with an established client base. Other advantages include shared marketing costs and the provision of training and support.
What are the disadvantages of Business Franchising?
Business franchising does have some disadvantages for both the franchisor and franchisee. Franchise fees can be prohibitively high and agreements often include restrictions on how the business is run. Also although risks are lower profits are also reduced since they are shared between both parties.