What is Franchising? Franchising has been the object of much discussion, even spawning its own term, ‘Franchising Culture’. In essence, Franchising is a system for business growth where an industry attaches a brand, or brand name, to one or more locations through a chain of outlets.
Franchising is founded on an advertising concept that is used by an entity as a means for business development. Where franchising, a franchisor leases its know-how, methods, intellectual property, processes, brand identity, and proprietary rights to a franchisee for the use of its brand, merchandise, and services. In return, the franchisee provides the capital necessary to carry out the operations of the company and pays a royalty, or franchise fee, to the franchisor. The franchisee retains ownership and control of the franchised outlet. Franchises offer an alternative to brand name investment, with a business that is easier to market and operate.
What is a brand? A brand is a word, symbol, or picture that associates a product with a company. An example is McDonald’s, the world’s largest restaurant chain. McDonald’s uses the ‘M’ for its signature red McDonald’s logo; this reflects the association between the fast food giant and the French Quarter located in New Orleans, which was where the first McDonald’s restaurant opened its first restaurant. Today, McDonald’s operates in almost all the world’s major cities, providing people with a choice of many different kinds of cuisine.
What is a Franchise? A franchise, also known as sub-brand, is a business venture in which the parent company rents or sells a specific name, brand, or format of its product or service to a retailer or consumer. Franchises are extremely profitable businesses for the parent company; however, it must be kept in mind that a large number of franchises have failed in the past because they did not provide quality services. Many people who purchase franchises end up disappointed with the business because they do not receive the level of support they expected or needed from the franchise.
What is a Sale? Sale of a Franchise occurs when a new owner, rather than starting a new business, sells a part of the franchise to another party. In many cases, the previous owner of the franchise agrees to sell in exchange for a payment of a percentage of the future franchise sales. Franchise sales are a very competitive business; many businesses have been sold for a minor portion of the original purchase price. Whether you are purchasing a brand new franchise or selling a part of one, you can rest assured that there are many opportunities for sale.
What is a Business Sale? When a previously owned business is sold in a transaction in which the franchisee no longer wishes to participate, it is referred to as a business sale. Many franchises have been sold for significantly less than what they are worth, allowing the franchisees to sell them for a profit. While no one will miss the idea of purchasing a franchise and being part of the ever-growing economy of America, they will miss out on the opportunity to reap great profits in their own businesses. A business sale is the best opportunity for franchisees to be able to achieve maximum profits in their own ventures. A large number of franchises have been resold successfully, allowing the business owners to benefit from the sale.
What is a Bank Loan? A Bank Loan is often a requirement for the purchase of a franchise. The financial institution that issued the loan may require that the franchisor submit to extensive financial and corporate documents prior to obtaining financing for the business. If a franchise is a high risk investment, the bank will also likely require that applicants have substantial operating cash flow, which is typically a substantial amount of money held by the franchisee.
What is a Franchise Agreement? Franchises agreements are legally binding contracts between the franchisor and the franchisee, which allow them to agree on all of the technical details of the business deal. The franchise agreement will outline all ownership responsibilities and the rights of termination. Franchise agreements must be carefully reviewed and understood before being signed by both parties.