A franchise business allows companies to expand their businesses by becoming suppliers to established business brands. It is an accepted arrangement in the business world and has created a lot of cutting-edge partnership across various industries and sectors.
A franchise is a form of business agreement between two businesses. The franchisor is the owner of a business. a franchisee is the benefactor of the supply of the franchisor, into his or her business.
Since it is a business agreement, the franchisee has the right to use the franchisor’s name, brand, market their product or service and may even use their methods of operation. Franchising is a form of partnership.
Advantages of Franchise
As a Franchisor
- Your product and service reach more targets, which signifies market expansion
- The business is run on multiple levels which make it viable and strong
- The brand network increases which in turn increases popularity
As a Franchisee
- There is no major risk involved
- Advertising, marketing and brand awareness is taken care of
- The business choice of location can only be influenced by you, not the franchisor
Disadvantages of Franchise
As a Franchisor
- Franchisee may compromise on the business quality which may affect the brand
- International franchisees may be out of control
- The business reputation is at risk
As a Franchisee
- Major business decisions by the franchisor may affect the franchisee
- The method of operation must be like that of the franchisor
- There’s an annual payment required, to be made to the franchisor
- There is no complete control of the business
Types of Franchise
In a single-unit franchise, the franchisor gives the franchisee the right to operate just one location of the business. The franchisee can use the franchisor’s name, brand, trademark and operation methods but at a specific location.
It is the most common type of franchise
Buying an existing franchise
You can buy an existing franchise instead of creating yours. The price is always relatively lower and may be a good investment, or not.
Since the business already exists, there is a ready-made market and customer base. There is also access to cash flow and experienced employees. The track record of the franchise can also help to determine the potential of the franchise.
Buying an existing franchise may be difficult. This is because most franchise rarely sell.
Multi-unit franchise is the opposite of the single-unit franchise. This means in a multi-unit franchise; the franchisor gives the franchisee the right to operate more than one location of the business. The franchisee can use the franchisor’s name, brand, trademark and operation methods.
This is contract franchise business between the franchisor and the franchisee. It involves the franchisor giving control of the business over a certain location to the franchisee.
A franchise area developer helps the franchisor to develop multiple locations in a market area. This gives the developer to the franchise in that market throughout the period of the agreement.