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Franchise

A franchise is a business model where a franchisor allows franchisees to use its brand and operating system for a fee. Franchisees manage their locations but must adhere to the franchisor's guidelines, benefiting from established brand recognition and support. However, they face high initial costs, ongoing fees, and limited operational freedom.

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30 views4 pages

Franchise

A franchise is a business model where a franchisor allows franchisees to use its brand and operating system for a fee. Franchisees manage their locations but must adhere to the franchisor's guidelines, benefiting from established brand recognition and support. However, they face high initial costs, ongoing fees, and limited operational freedom.

Uploaded by

gojosatoru.first
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Franchise

A type of business model where a successful business (franchisor) allows others


(franchisees) to use its brand name, products, and operating system in exchange for a
fee and royalties. The franchisee owns and manages the local business but follows
strict guidelines from the franchisor.

Difference franchisee and franchisor

Ownership: The franchisor owns the brand and business model, while the franchisee
owns and runs the individual location.

Control: The franchisor controls the overall brand and system, while the franchisee
manages daily operations under the franchisor’s rules

Examples of franchises

KFC

Subway

Dominoes

Payless Shoe Store

Steps setting up franchise

Applying for the Franchise: This step involves submitting an application to the
franchisor, which may require providing details about your financial background,
business experience, and location preferences. The franchisor uses this information to
evaluate whether you are a good fit for their brand and capable of running a successful
franchise. This process often includes an interview or meeting to discuss your goals and
ensure alignment with the franchisor’s expectations.

Paying the Initial Fee: Once your application is approved, the next step is paying the
initial franchise fee. This fee grants you the rights to operate under the franchisor’s
brand and includes access to their systems, training, and support. The amount varies
depending on the brand, and it can be a significant upfront investment, covering the
cost of entry into a proven business model.

Securing a Location: If the franchise requires a physical storefront, selecting a suitable


location is critical. The location should meet the franchisor’s guidelines, such as being in
a high-traffic area or catering to a specific customer demographic. In many cases, the
franchisor provides support, conducting market analysis and offering advice to help you
choose the best possible location for success.

Receiving Training: Before opening the franchise, the franchisor provides training to
ensure you understand how to run the business according to their standards. Training
often covers operational procedures, customer service techniques, product handling,
and technology systems used in daily operations. The goal is to equip you with the
knowledge and skills to replicate the franchisor’s successful business model in your
local area.

Following the Franchisor's Operating System: After training, you will run the franchise
according to the franchisor’s established operating system. This system includes
detailed guidelines for daily operations, such as inventory management, customer
service protocols, and product offerings. Adhering to these standards ensures
consistency across all franchise locations, which is key to maintaining the brand’s
reputation.

Support from the Franchisor: Throughout this process, the franchisor provides ongoing
support in several key areas:

Training: Continuous training for you and your staff to stay updated on new products or
processes.

Branding: You’ll receive marketing materials and brand guidelines to ensure your
franchise reflects the overall brand identity.

Marketing Support: Franchisors often handle large-scale marketing campaigns, like


national advertising, while also assisting with local marketing efforts.

Operational Guide: The franchisor provides a comprehensive guide with step-by-step


instructions on running the business efficiently, covering everything from daily tasks to
handling challenges.

Advantages of a Franchise

Established Brand Recognition: A major advantage of buying a franchise is that you


gain instant access to an already well-known brand. This eliminates the challenge of
building brand awareness from scratch, making it easier to attract customers from the
start.

Proven Business Model: Franchises come with a tested and successful business model.
The franchisor has already fine-tuned the operations, reducing the risk of failure and
improving your chances of profitability.
Training and Support: Franchisees receive extensive training from the franchisor,
ensuring that they are well-prepared to run the business effectively. Ongoing support in
areas like marketing, operations, and management helps maintain business standards.

Marketing and Advertising: Franchisors often run national or regional marketing


campaigns that benefit all franchisees. Additionally, the franchisor may assist with local
advertising efforts, ensuring that the business stays competitive.

Easier Financing: Lenders are often more willing to provide financing to franchisees
because the brand’s proven track record reduces the risk for investors. The established
reputation and lower failure rates make it easier to secure loans.

Lower Risk of Failure: Since franchisees operate under a tried-and-true system, they
experience lower rates of failure compared to independent businesses. The franchisor’s
support and expertise help minimize mistakes and streamline the business process.

Disadvantages of a Franchise

High Initial Costs: Although the franchise model provides benefits, it often comes with a
high upfront investment. The initial franchise fee, coupled with costs for setup,
equipment, and royalties, can be substantial, requiring significant capital.

Ongoing Fees and Royalties: Franchisees must pay ongoing fees to the franchisor,
usually in the form of royalties (a percentage of revenue or profits) and marketing
contributions. These fees can reduce profitability and be a financial burden over time.

Limited Operational Freedom: Franchisees are required to follow the franchisor’s


established rules and guidelines. This limits the flexibility to make independent business
decisions, such as altering the product lineup, pricing, or marketing strategy.

Reputation Dependent on the Franchisor: If the franchisor experiences bad press or


mismanages the brand at the corporate level, it can negatively affect all franchise
locations. Franchisees are vulnerable to the overall performance of the brand.

Risk of Termination or Non-Renewal: The franchise agreement is a legally binding


contract that may include clauses for termination or non-renewal if the franchisee
doesn’t meet certain standards. The business could be at risk if these standards aren’t
maintained or if the agreement isn’t renewed.

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