ALL YOU NEED TO KNOW ABOUT FRANCHISE BUSINESS
The arrangement of franchise business has been accepted world-wide by a lot of businesses cutting across almost all sectors in business. Franchising has helped a lot of startups and entrepreneurs who which to do business as a notable brand but for themselves and paying agreed percentage or amount annually or otherwise as agreed by the two partners.
I will be sharing with you all you need to know about franchise business, its advantages, disadvantages and I believe as an entrepreneur, you will learn one or two things either as a Franchisee or the Franchisor.
Franchisor: Owner of a brand or business venture.
Franchisee: A partner wishing to use the franchisor’s brand in carrying out his business.
What is a franchise?
Franchise is the business agreement involving two legally independent parties (Company, Venture, etc) whereby the franchisor gives license or authority to the franchisee to carry out its business or sell its products on the franchisors name at an agreed fee payable annually or otherwise.
This means that through this agreement, the franchisee has the right to the franchisors name, market his product/service or use their operating methods. Franchising gives authorization to partners to enable them carry out specific commercial activities as an agent.
Examples of reputable companies that run franchise include but not limited to; McDonalds, Mr. Biggs, Golden Tulip Hotels, Boston Pizza, Embassy Suite Hotels, Dunkin Donuts, Wendy’s, PostNet, Metal Supermarkets, InterContinental Group Hotels, 7-Eleven, Netspace and a whole lots of others. Even government owned establishments like NNPC in Nigeria is into the business of franchising. The government owned oil corporation partner independent marketers that have filling stations, taking up their names and changing to theirs, then supply them oil products directly to help reduce scarcity of oil products which is most of the times artificially staged by the independent marketers.
Mr. Biggs Franchise
ADVANTAGES OF FRANCHISE
As a Franchisor
- You have a business running for you but not run by you.
- You product/service reach more target with almost no effort from you
- Your brand network increases thereby increasing in popularity
As a Franchisee
- Starting up with a brand name already enjoying widespread recognition
- No much advertising and sensitization required
- Choice of location can be chosen by you (Except otherwise stated in the agreement)
- Franchise in business helps generates more sales as soon as you start as customers are attracted because of the level of quality and consistency as it is mandated by the franchise agreement as standards are not to be compromised.
- Franchise increase your chance of success in business
- Most likely, the franchisor trains the franchisee and also supports in the form of general advertisement, operating procedures and assistance and management support.
DISADVANTAGES OF FRANCHISE
As a Franchisor
- Franchisee may compromise quality and standard thereby affecting brand.
- Might not be able to control international franchisees.
- Other reputational risks may abound.
As a Franchisee
- General franchise business decisions might not consider the franchisee
- The franchisor is not compelled to renew the franchise agreement and might put the franchisee out of business
- Business must be done according to the operational manual of the franchisor
- Annual payment of franchise fee
- No complete control if you decide to sell your franchise business
- Your choice of location might be restricted except otherwise stated in the agreement
- Franchise agreement may be terminated if other products/services is sold/rendered within the complex/office.
Types of Franchise
According to About.com (Now The Balance Small Business), the following are the different types of Franchises
- Single Unit Franchise
- Buying an Existing Franchise
- Multi-Unit Franchise
- Area Developer
- Master Franchise
Entrepreneurs and Startups who wish to start the franchise business should think of some of the under listed sectors; Food Franchises, Retail Franchises, Hotel Franchises, Automotive Franchises.
Also see how Government Frustrates SMEs