You may be considering franchising and wondering if it’s the right path for you. If you’re not sure about what franchising really means, even the basics can feel confusing, which is why so many turn to FranchiseWire.com for latest news and franchising industry information. Here’s a guide to everything you need to know about franchising.
What Is Franchising?
Franchising is a business model where a well-established brand, called the ‘franchisor,’ lets an independent business owner, or ‘franchisee,’ use its brand name, business methods, and other intellectual property. In exchange, the franchisee pays an upfront fee and ongoing royalties to the franchisor.
There are many types of franchise setups, but three are the most common:
- Business Format Franchise: This is the most common type. The franchisor lets a third party operate a business using their brand and business model. In return, the franchisee pays fees and a percentage of their sales.
- Product Franchise: This is the oldest type of franchise, where the franchisee exclusively sells or distributes the franchisor’s products.
- Manufacturing Franchise: In this model, third-party manufacturers have the exclusive rights to produce and sell products using the franchisor’s brand name and trademark.
Advantages of Franchising for Entrepreneurs
Franchising offers several benefits, including ongoing support from the franchisor. Here are a few key advantages of owning a franchise:
- Work with an established brand name: A well-known brand helps build customer loyalty, opens up more sales opportunities, and gives you a competitive edge.
- Lower risk: The chances of your business failing are much lower compared to starting your own business from scratch, especially if you choose a reputable franchisor.
- Easier procurement: You’ll have access to trusted suppliers and better deals on products.
- Marketing support: You won’t need to worry about advertising or promotions, as the franchisor handles this. They also do market research to find the best locations and share the information with you.
- Training and guidance: The franchisor provides training to help you manage your business effectively, including keeping your costs low.
What Does the Franchisor Gain?
Franchising offers several benefits to the franchisor as well:
- Expansion to new locations: Franchisors can expand to desirable locations without investing their own money. Franchisees provide the capital for new businesses.
- Ongoing revenue: Franchisors earn royalties from franchisees.
- More advertising power: With more franchisees, the franchisor’s advertising reach increases.
How Does the Franchising Process Work?
The franchising process can vary depending on the type of franchise and the franchisor’s rules. However, a typical process follows these steps:
- Gather information: Research the types of franchises you’re interested in. Be clear about what you hope to gain from starting a franchise. Make a list of potential franchisors that match your goals, budget, and skills. Also, consider the legal factors involved in your state.
- Contact the franchisor: Reach out to a representative from the franchisor and set up a meeting. This is your chance to learn more about the business and ask important questions. Key things to ask include the company’s history, growth plans, and any risks. After the meeting, the franchisor should provide you with their brochures and other relevant information.
- Negotiate terms: If the franchisor meets your criteria, it’s time to negotiate the partnership terms. This can be a complicated stage, so it’s helpful to have strong negotiation skills. You can also improve these skills through programs like Tulane’s Applied Business Studies.
- Sign the agreement: Once you agree on the terms, the next step is to sign a formal contract. It’s a good idea to hire a legal expert to review the agreement. Take your time to make sure everything is clear to avoid any misunderstandings later on.
Franchise Regulations
The Franchise Disclosure Document (FDD) is a legal requirement that franchisors must provide to both state regulators and potential franchisees. The FDD includes all important details about the franchise and its operations. According to the Small Business Franchise Act, the franchisor can renew the franchise agreement at the end of the term.
Prepare to Become a Business Leader with Tulane SoPA
To run a successful franchise, you need the right business skills to manage your operations well. Tulane’s School of Professional Advancement offers Applied Business Studies courses that can help you build the foundation for your future as a business owner. Learn more about our flexible online programs and how they can help you start your career as a franchise owner today.
