The franchise business model defines the guidelines for the sale of products or the provision of services. Before starting the business, the franchisee signed a franchise contract, which is a legal contract. <! – ->
The franchise agreement gives the franchisee the right to run the business. Is it a blast that the franchise business will be successful?
According to statistics from the Small Business Administration, a franchise company has a better chance of success than a solo new business. However, this is only possible if the franchisor and the franchisee understand their roles and adhere to the system.
<! – -> Both sides must be equally committed to be successful. There is no guarantee of success, even with a thriving, pre-determined unit.
What is the difference between a franchisee and a franchisor?
Who is who? According to the franchising definition, the franchisor is the person who started a successful company and decided to expand by selling clones of the original business. The franchisee is the person who buys the franchise.
For example, Jane Kennel Suites opens a unique dog boarding company. Each dog has its own suite, similar to a hotel room, with a private fenced area. Individual attention and much of it is the focus of the business. Kennel Suites has been extremely successful because pet owners are thrilled that their pets receive such personal attention.
Jane decides that her business model can work successfully anywhere. She becomes a franchisor and starts looking for and recruiting franchisees.
There is often confusion between the definitions of franchise and license. A license is a right to use a trademark. The licensee pays a license fee for the use of a trademark, and the licensee can also decide how the trademark should be marketed and sold. <! – ->
The franchise is a specially defined legal relationship. These are brand logos, which differ from a license for a brand. And although it operates as an independent branch, the franchise must be managed according to established guidelines.
Roles and responsibilities of franchisors
The franchisor is the person who has a successful business model and the right to use that model sold to another person or organization.
<! – -> The franchisor has set up the original business system and must now set up the franchise system. What roles and responsibilities does the franchisor have?
- Provision of the FDD (Financial Disclosure Document). The franchisor should make these documents available to potential franchisees. The document contains information about profit and loss, business costs and other costs. It should also include biographical and professional information about the seller, litigation or bankruptcy information, and definition of fees. The fees can include initial fees and ongoing fees.
- Check franchisees. One of a franchisor's biggest mistakes is deciding to sell the franchise because the franchisee has enough money. Yes, for the franchise company to be successful in the future, the franchisee must have sufficient funds. The franchisee must also have excellent work ethic, skills in hiring and training staff, and experience in running a business.
- site selection. The franchisor knows why the business was successful in a certain population. The franchisor wants to select a website that is suitable for franchisees to succeed. The websites should be positioned so that there is no competition between franchisees. For example, Jane from Kennel Suites knows from research that future Kennel Suites should be in upscale urban areas to have the best chance of developing. She thinks of it when making decisions about expansion, not just in her state but at the national level.
- Training and support. For franchising to work, training and support must continue. It can be offered in a number of ways, including financial support, administrative services, and the use of established marketing and advertising measures. According to the contract between the franchisor and the franchisee, the franchisee must know in advance whether there are any fees for training and support.
Roles and responsibilities of the franchisee
The franchisee definition is the person or organization that buys the franchise from the franchisor.
The franchisee is responsible for operating the business and generating a profit. According to their contractual agreements, franchisees must operate the business system in a prescribed manner, otherwise the franchise system will not work.
The tasks of the franchisee include:
- Protection of the franchise brand. The franchisees must operate the business in such a way that the reputation of the franchisee is preserved. One of the disadvantages of the system is that one person's actions can affect many others.
- Establishment of the business. Franchising is not a magic carpet for business success. Like growing a business, long hours, frustrations, setbacks, and financial problems are part of the game. But one of the advantages of franchising is that you are not alone. Franchisors have already set your path. Along with the right to run the business, there is the right to get support when needed.
- Hiring and training employees. Franchisors have followed this path and know how important this process is for the success of the company. The franchising business model should include guidelines for hiring and maintaining employees, and an employee handbook. It is a great advantage to have a pre-created employee handbook that has already been approved by a person's HR and legal departments.
- Advertising and marketing – franchisors most often provide these materials and the rights of use. A percentage fee may apply for advertising and marketing. There may also be restrictions on the use of these materials.
Becoming part of franchising is not for everyone. But if you got the answer to “ What is a franchise? “Like – buying a company with a proven track record and letting it work for you – then it may be just the thing for you to get involved in franchising.
One of the most important aspects of franchising is mutual review. Both sides will make considerable financial investments. Before signing a contract, an investor or franchisor should use the services of a lawyer or advisor who is knowledgeable in franchising.