Understanding the Franchise Business

What is franchising?

Franchising is the most popular business strategy in the world, but do you know what franchising is?

Image © Salvatore Vuono

  • A strategic partnership focused on getting and keeping customers.
  • A business strategy.
  • A marketing and distribution system.
  • A method of distributing products and services.
  • A method of dominating markets.

Franchising is all of the above – franchising in its purest form is a partnership between a franchisor and franchisee.

What each party brings into the relationship

The franchisor provides:

  1. The brand
  2. The operating system
  3. Administration and field support
  4. Market share

The franchisee provides:

  1. Time
  2. Money
  3. Motivation

How franchising works

Franchising has been used by companies to expand rapidly without having the benefit of an unlimited source of funds. With the franchise model, the franchisor has developed a recognizable brand name and operating system which delivers on its promise to the customer. The franchisor uses franchising to expand rapidly, using the franchisee’s capital to build the location and operate the business. In return, the franchisee gets to use a proven, successful operating system and brand together with the franchisor’s ongoing support and training to get into business for himself/herself without having to go it alone. The fact is that franchisees who follow their franchisor’s operating system generally have profitable businesses.

The franchisee normally pays an initial franchise fee as an “entrance fee” to gain access to the franchisor’s system. The franchisee also pays an ongoing royalty for the continued use of the brand and operating system.

For its part, the franchisor trains the franchisee on how to operate the franchise business within its proven system. It also provides the franchisee with general business training, helps select a suitable location and provides guidance on the location buildout. The franchisor’s personnel are fully engaged with the opening of the location and the training of the franchisee’s employees. Once the location is open, the franchisor normally provides ongoing support to help the franchisee with the operational, financial and human resource management of the business.

The franchisee/franchisor relationship

A franchisee enters into a license agreement (the franchise agreement) with the franchisor to use the brand, operating system and on-going support, in a defined market, for a specific period of time. The franchisee is tasked with using the brand, operating system and ongoing support to build the business and increase the brand’s overall market share.

The ultimate reason for a company to franchise is to use its operating system to get and keep customers by providing quality, consistent products and services, which leads to satisfied and loyal customers. By doing this, a business can dominate the market and gain disproportionate market share.

A license to operate the franchise

There are many misconceptions about the franchisee/franchisor relationship, not least of which is that the franchisee “buys” the franchise rights. This is not correct. In fact, the franchisee is granted a license to operate within a territory for a specific period of time, usually five years, after which the license may be renewed if the license agreement provides for renewal, and so long as the franchisee isn’t in default of any of the provisions of the license agreement.

The license agreement specifies the rights and obligations of the franchisee and franchisor. The most important aspects of the license agreement spell out the obligations of the franchisee. It is important that the franchisee understands that he/she is joining a standardized operating system that has been proven to work at getting and keeping customers. The obligations which the franchisee must perform ensure that the standards of the franchise system are not compromised.

The sections of the license agreement dealing with these obligations are not only important to ensure a solid working relationship between the franchisee and the franchisor, but also with all the other franchisees. When one franchisee operating under a brand decides not to maintain the standards of the system, then all other franchisees are negatively impacted. The obligation of the franchisor is to protect the system and the investment all other franchisees. Franchisees who do not maintain the system standards are dealt with fairly swiftly by high quality franchisors.

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This New Year, Resolve to Reduce Your Environmental Footprint

With 2014 almost upon us, it’s time to start thinking about those New Year’s resolutions. Are you focusing on self-improvement this year? Eating better, exercising more, quitting smoking – is one of those at the top of your list?

Self-improvement is a wonderful goal. But why not try to be a little bit more environmentally altruistic this year and resolve to start living a greener life? With a few simple changes, each of us can reduce our environmental footprint and do our part to improve the condition of our cities and our planet.

Photo © Michelle Meiklejohn

Change Your Lifestyle

Going green doesn’t have to be a difficult, painful or inconvenient process. We can all make a positive impact on the environment by making eco-friendly choices, by using products that conserve energy and pollute less, by recycling and re-using more, by limiting the use of toxic household chemicals, and by promoting greener ideas in our households and our communities.

Consume Less Energy

There are many simple ways we can cut down on electricity, water and gas usage without compromising comfort. This Australian government website offers a wealth of information on cutting consumption and saving money on utilities. No matter where in the world you live, you can cut consumption and lower your bills by following a few simple rules.

Tune Up Your Vehicle

A properly maintained vehicle not only runs more efficiently, it also burns less fuel and produces fewer emissions. Earthshare.org suggests making sure tires are properly inflated, getting regular tune-ups and changing your air filter. All of these suggestions will save you money by improving your gas mileage, thus reducing greenhouse gas emissions. 

 

Be Conscious of What Goes Down Your Drain

Do you pour solvents, paints, bleach and other corrosive or harsh chemicals down your drain? This article on Freedrinkingwater.com should give you pause for thought. NEVER pour things down the drain that you wouldn’t be willing to drink out of a glass! ALWAYS take these materials to a hazardous waste disposal site instead of sending them down into the sewer system, from where they will end up back in the water table.

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Seasons Greetings to All Our Customers, Visitors, Affiliates and Partners!

candles in window

Whatever holiday you’re celebrating at this time of the year, we’d like to wish you all the best, and may it be a very happy and safe holiday, spent with those that you love.

Merry Christmas!

Happy Hannukkah!

Happy Kwanzaa!

Happy Pancha Ganapati!

SEE YOU NEXT YEAR!

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