Franchising
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Franchising involves a business relationship where a franchisee pays a franchisor for the right to market and distribute the franchisor's goods or services. The franchisor provides an established brand, operating system, training, and support in exchange for ongoing fees. While franchising offers benefits like using an established brand and higher success rates than startups, it also involves less creativity and sharing profits with the franchisor. Carefully assessing the franchisor, franchise product or service, and legal and financial implications is important before buying into a franchise opportunity.
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Franchising
- 2. Franchising • Franchising is a business relationship in which you (the franchisee) pay the owner of a business (the franchisor) for the right to market and distribute their goods or services over a fixed period. • Buying a franchise can be a smart business move. You not only get access to an established brand and product or service, you benefit from a proven operating and marketing system designed to reduce the risks associated with starting your own business. You also receive ongoing training and support to improve your chances of success. • In a franchise business, the franchisor provides a developed way of doing business, ongoing guidance, systems and assistance in return for periodic payment of fees and/or purchases.
- 3. Advantages of buying a franchise • Franchises offer the independence of small business ownership supported by the benefits of a big business network. • You don't necessarily need business experience to run a franchise. Franchisors usually provide the training you need to operate their business model. • Franchises have a higher rate of success than start-up businesses. • You may find it easier to secure finance for a franchise. It may cost less to buy a franchise than start your own business of the same type. • Buying a franchise means buying an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
- 4. Disadvantages of buying a franchise • Buying a franchise means entering into a formal agreement with your franchisor. Franchise agreements dictate how you run the business, so there may be little room for creativity. • There are usually restrictions on where you operate, the products you sell and the suppliers you use. • Bad performances by other franchisees may affect your franchise's reputation. • Buying a franchise means ongoing sharing of profit with the franchisor. • Franchisors do not have to renew an agreement at the end of the franchise term.
- 5. Assessing franchise opportunities • Before you buy into a franchise, carefully consider all the legal, financial and business implications. • The franchisor 1. How long has the franchise business been established and what is its reputation? 2. Who owns the franchising organisation and what is their record? 3. How robust and successful is the franchise system? 4. What active support does the franchisor provide in terms of training, purchasing, choosing a location, marketing and advertising?
- 6. Assessing franchise opportunities • The franchise product or service 1. Do the products and services cater for ongoing client needs? Are they just a novelty or do they cater for seasonal demands? 2. Are the products and services protected by patents, registered designs, trademarks or copyright? 3. What is the existing and potential competition? 4. What are the projected sales and profits and how are they determined?
- 7. Assessing franchise opportunities • The franchise product or service 1. Do the products and services cater for ongoing client needs? Are they just a novelty or do they cater for seasonal demands? 2. Are the products and services protected by patents, registered designs, trademarks or copyright? 3. What is the existing and potential competition? 4. What are the projected sales and profits and how are they determined?