Business Franchising is a good way to expand your business. However, it is not the only way and it is not suitable for every business. A company can have company-owned locations, franchisees, alternative distribution strategies, and licenses in the same market. Developing your strategic growth plan does not mean that you have to limit yourself to franchising. Let’s talk to see if franchising is for you and if your business id franchise ready.

 

Franchising is based on a contractual relationship between the brand owner (the franchisor) and the local operator (the franchisee) to distribute products or services using the franchisor’s brand name and system.

The franchisor retains significant control over where the franchisee will open the store, how the franchisee will operate their business, how the product will be marketed, how the staff will be trained, how the books will be kept, etc.

But is important to understand that the definition of a franchise can vary significantly under state law, and it is important that you don’t simply rely on the federal definition of what a franchise is in deciding whether or not you meet the definition.

Under law, the franchisee must obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark.

The franchisor should exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation.

Generally speaking, as a condition of obtaining the franchise, the franchisee pays an initial franchise fee to the franchisor.

Under a Business Format Franchise, the franchisor is licensing a franchise system for delivering the products and services, not just the brand name. In th​ese franchises the franchisor usually provides operating manuals and training, ongoing support, quality control, and a marketing strategy of part of their franchise system.

Another type of franchise is the Traditional Franchise or Trade Name ​Franchise. In these franchises it is the product that is most important, as ​it generally requires pre-sale and post-sale servicing by the franchisee. Automobile dealers and soda and beer distribution fall under this category.

At its core, franchising is about the relationships between the franchisor and the franchisees. The franchisor provides the franchisee with leadership and support, and exercises some control over the franchising operations and the franchisee’s adherence to brand guidelines. In exchange, the franchisee usually pays the franchisor a one-time initial fee (called a franchise fee) and a continuing fee (known as a royalty).

In franchising, the franchisor does not control the day-to-day affairs of the franchisee. The job of the franchisor is to set and enforce brand standards; the job of the franchisee is to manage their business and staff to achieve those brand standards.

When structured and managed properly, both franchisor and franchisee benefit financially from the relationship.

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