Introduction to Franchise Business

The business form of franchising has been said to be one of the greatest ever advancement in the world. Its reputation has to do with its verified track record of success, as well as the relative ease in which entrepreneurs can become franchise business partners or owners.

What is a franchise business? A franchise normally involves giving away or granting by one person (Franchisor) to another person (Franchisee) the right to carry on a certain trade mark or name, according to an identified system, regularly within a location or a territory, for agreed terms. The franchisee is offered a franchise license to use the franchise business’s trademarks, signage, software, systems, as well as other proprietary systems and tools accordance with the rules in the franchise deed.

What are the merits and demerits of a franchise? Just like any other business model, there’re both merits and demerits to a franchise and this relates to both the franchisor and the franchisee. Often, franchise business model, like other businesses, is mutually cost efficient and beneficial for both parties and it’s vital that this be clear to any person considering this model.

• Merit to franchisee

The main benefit for a franchisee is that he or she able to use a proven to be successful and well-established business type, including the branding, the brand name, the advertising and marketing, the price structure, etc., in order to operate his or her own business and make profit. Therefore, a huge amount of risk is eliminated.

• Merit to the franchisor

The main benefit to the franchisor is the ability to use other person’s fund to expand the brand more easily than he or she could either on his or her own or via lenders or investors. The initial fee as well as ongoing royalties allows the franchisor to build his or her brand without surrendering control to outsiders or even having the pressure of re-paying the lenders.

• Demerit to franchisee

For most individuals, having to pay a certain percentage of their earning to a franchisor is a demerit, however, the security and safety of being a part of an established business with work coming in their directions, other are more than willing to pay the price.

Due to this, many people view franchising as an obligation, much just like a marriage. A good relationship between franchisee and franchisor, sharing common goals over a very long time, is important to the success of franchise business model, and thus the brand – this is a very important factor that should be considered by both parties before entering into any contract.