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How does a franchise operate?

How does a franchise operate?

Thinking about venturing into the world of franchising? Here’s how to turn your franchise business into a success story.

Franchising involves a business owner (franchisor) licensing to a third party (franchisee) the right to operate a business unit or provide goods and/or services using the franchisor’s business name and system.

Potential franchisees must be able to understand how franchising works to make sure that their business venture succeeds.

Here are things that franchisees  need to consider:

  • Function and operation
  • Benefits and risks
  • Time frame
  • Location
  • Training and evaluation

Function and operation

There are a lot of reasons why franchisors decide to open their business for franchising. Some of these includes the franchisor’s belief in harnessing more from their brand via third party operators (franchisees) and the need to secure competitive advantage by expansion through external capital.

On the other hand, franchisees decide to buy a franchise primarily because they understand that it is a lot easier and cheaper to franchise than building their own business.

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Franchising also provides franchisees branding and buying power advantages, eliminating the need to start from scratch in introducing and marketing a new brand.

When franchisees enter into a franchising agreement, franchisors has the obligation to assist franchisees in finding a good location for their unit, provide operational and marketing training, and advise  proper management techniques.

It is important for franchisees and their franchise units to comply with the set of rules and guidelines introduced by the franchisor. This will help in the successful direction and operation of the franchise and keep the brand performing at its best. This will also ensure uniformity of branding and operational specifics among all individual franchise units.

Benefits and risks

One of the most obvious benefits of getting a franchise is the expert and professional support from the franchisor with regards to the operation of the franchise unit. Franchisees could also benefit from a much larger branding and marketing advantage—which is usually national or international in scope.

They benefit from extensive marketing campaigns from an already well-known and established brand with a proven format developed by the franchisor for the convenient operation of the franchise unit. In addition, franchisees also get regular expert advice and updates to ensure that the unit maintains its operational and financial success.

While there are obvious benefits, franchisees must also consider several risks when deciding to finally buy a franchise.

One of the biggest risks is the high cost of purchasing a franchise unit since the franchisor’s brand is established and well-known. Startup fees for a franchise are usually high. Franchisees should make sure that they have the financial resources to afford the purchase and operation of their prospective franchise.

Franchisees will also be expected to conform to certain standards and restrictions on the architectural design and appearance of the business location, product and/or service specification,  and implementation of operational standards including business hours, employee uniforms, product/service pricing, and accounting systems and procedures.

Franchisees need to account for these considerations to properly execute their duties as franchisee and efficiently face future challenges and risks in the operation of their franchise unit.

Timeframe

Generally, franchise contracts lasts between 15 to 20 years. Contract renewals are not guaranteed, as this depends on several factors.

Franchisees can always ask and inform their franchisors if they want to extend or renew their franchise contract. Contract terms may or may not change when renewing.

Location

Most franchisors are very particular with each franchise unit’s business location and require franchisees to comply with certain standards concerning business location and operations in specific territories. This is to ensure that uniform branding is maintained and competition from other stores or business units are reduced, if not completely avoided.

Training and evaluation

Training and evaluation are vital to both the franchisor and the franchisee. Keeping a uniform branding image is always an important thing for the franchisor.

It is also important to maintain a high level of operational efficiency in the franchise unit. Franchisors provide training for both the individual business owner and to the franchise employees. Monthly and yearly evaluations are also done to ensure all systems are working satisfactorily, if not excellently, according to set standards.

With all the above considerations accounted for, franchisees are now equipped to tackle the challenges of owning and operating a franchise unit as well as enjoying the benefits of running one. It’s now time to turn the franchise venture into a success.

 

How does a franchise operate?
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