Monday, June 9, 2014

Understanding Franchising

We all have had lunch, rented cars, sent parcels, ironing shirts or staying at a place that with or without us knowing it, are franchised companies.  These are commercial operations that are managed under what is called a business franchising model.

Franchising today is a very important way of doing business, both in North America and most other parts of the world. As entrepreneurs, we all have options, to start our own business, to buy a business that has been running for a few years or to buy a franchise and become a member of the franchising community. This is why I dedicate this week's article on franchising.

There are different definitions of the term "franchise", although most refer to a close relationship between two parties, in which one of them gives the other the right to use an asset, be it a brand or right to sell certain products or services, under the name or the business format of the franchisor.

The main features that are identified as important part of a franchise are, among others, the following:

  •        The franchisor entity (the one with the idea, brand or business concept);
  •        The franchisee (who takes on this idea, brand or concept for expansion);
  •       The franchise contract (which indicates each and every one of the responsibilities, terms and conditions of the relationship between these parts);
  •         The different operational manuals that cover different aspects of the franchise, such as issues relating to the brand, image, operations and finances, as well as having the franchise agreement.

Franchising has been defined as a system of cooperation between different companies linked by a contract under which one of them, the franchising company, delivers to others, the franchisee , the right of using a brand and / or a commercial formula embodied in a distinctive signs, assuring at the same time technical support and regular services needed to facilitate such exploitation.

A key aspect in franchising is that the franchisor will license the use of its products, brands and services in exchange for certain fees, that would range from the franchising fee that is paid in advance, a monthly payment for royalties or retainers and certain other fees to cover marketing, administration, operation performance and other issues. As each franchising company ad business model is different, there are many key aspects to learn and understand when considering purchasing a franchise. There are many other aspects governing a franchise that relate to legal, business, trade, and there are laws and regulations that have been created in many countries, in an effort to control, regulate and support the growth and rise of franchising companies.

Ell entrepreneurs start with a dream, which turns into ideas; and those that take the ideas into action succeed most of the time. As a friend and colleague of mine John Whitt wrote me recently: “
Daydreamer and doers = awesome combo.

The main purpose of franchising is to continue promoting the operations and management of a company, which leads to a successful business for new and existing entrepreneurs. To successfully franchise a business, the franchisor must meet a number of prerequisites or criteria, including:
  1.          A recognized Brand;
  2.          A different and innovative franchising concept;
  3.          That the company has managed to prove itself as a successful and growing company;
  4.          A committed management team.

And there are specific criteria the potential franchisee must also meet. To create a successful franchising system, all parties need to work towards a common goal. Results today show that there are many ways for growth and entrepreneurship.

Here’s to your success!

(1) Excerpt from the book “Motivando al Futuro Franquiciado”, Luis Vicente Garcia. November 2011

Luis Vicente García is Management Consultant, a Certified FocalPoint Coach, a Brian Tracy International Trainer, best-selling Author and an International Speaker.


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