What is a franchising?
Franchising is a relationship between two or more businesses where the first business (the franchisor) allows other businesses (franchisees) to use its name, products, marketing, expertise and branding for a specified franchise fee.
What is a franchisor?
A company that grants the right to an individual or entity (franchisee) to use its name, trademark, and system of business operations for distribution of a product or service, in return for a fee and other considerations.
What is a franchisee?
The franchisee is a person or business that is licensed to use the franchisor’s trademark, trade name and business model.
Advantages of buying a franchise
- Buying into a franchise means working under the banner of an established business.
- A franchisee does not need to have a full array of business skills to start a business
- The location of the franchise has been assessed for suitability.
- A franchise allows the franchisee to go to market faster than if he were starting a new business from scratch.
- Improved credit terms.
- Assistance in all aspects of starting up the business, for example, staff selection, training, shop fittings, etc.
- Access to expert services, such as market research, product development, etc.
- Operational support through the franchisor’s field staff.
- Joint advertising and promotions.
- Bulk buying power exercised through the franchisor who is able to negotiate discounts with suppliers.
Buying a franchise - What you need to consider
- May be limited in terms of ability to do local marketing and employing local market strategies.
- Relying on the franchisor to make significant business decisions can affect the franchisee’s future income.
- Franchise costs - A franchisee will often be expected to pay an initial cost to buy into the franchise agreement and thereafter pay ongoing fees.
- Tied to suppliers - Finding the cheapest suppliers to minimise your overheads and maximise your profits are not allowed because being part of a franchise means you’ll be required to use the franchise supply network.
- Risks from others - Risk that other franchisees might damage the reputation of your business. One bad decision by partners could be devastating.
- Franchisee has to adhere to the business format guided by the franchisor by way of rules set out in the franchise agreement.