How Does a Franchise Work?

A franchise is a mode of business. The franchisor, like McDonald’s or the Ford Motor Company gives you the right to use their name for selling products or services. However, you need get licensed by the franchisor to be able to use their brand name to sell whatever you sell.

Why would big companies want to let small entrepreneurs use their setup? From their point of view, it is simple logic: it is very cheaper to use franchise to expand their business rather than establishing their own setups. Moreover, they get the franchising fees and share of the profit percentage and they make you work their way.

What is your benefit? You benefit from their goodwill of their brand name. You get expert guidance to train you and your staff, to set up your business, to select your site, to negotiate your lease, etc. You benefit from advertising and collective buying power. For people with no or little experience, franchising is a great start.

The franchisor plays a decisive role in the field of identity, branding and proper operation of a franchise network. In this context, he deals with the search and selection of franchisees, monitors the performance of the services and guarantees to its partners, by applying all the basic principles and instruments of co-operative management, the compliance with all rules necessary for the proper functioning of the network.

The franchisee provides the capital, labor, and contact information in the partnership. In general, it focuses on the financing of all necessary investment management unit franchisee and achieving a sufficient turnover. In addition, it seeks to establish lasting contacts with customers and deliver to the parent network of all important information for the proper functioning of the network.

The main advantage for the growing franchise companies in that it allows you to save time and effort that goes by “grinding” the most important parts of any new business – the supply chain, sales, marketing, working with the staff. This dramatically reduces the risks associated with entering the market.

You can purchase a large well known company the right to use its intellectual property. Typically, this means you use brand, technology, manufacturing and selling a product, service standards. Usually, the scheme of relationships between the franchisor and the franchisee of its partner is as follows. The franchisee makes an initial payment. Thus, it demonstrates the seriousness of their intentions, and enters into a family of companies, operating under a single brand, and together with the already established brand name, technology and know-how.

Experts of the parent company trained its staff and management, provide step by step plan of action required to run the business.From the start of business the franchisee is under the all-seeing eye of his older stall, which is closely monitoring compliance with all standards adopted by his company. But as the price of all these advantages umbrella organization regularly collects royalties from his partner.

You can consider franchising as a paying a business owner for their strategy of business, marketing, operations and using their name. this is what franchising is all about, you make relations to an already successful business, that way you use their systems and benefit from their already established brand name to get quick payback for your investment. You use the existing system and its recognition and play by their rules.

Do you remain your own boss? Not exactly. You have to follow someone else’s directions and answer them. You are not the real owner of that business. You only own the assets that you purchase for establishing the business.

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