The franchising business model has been around for a while and has many operations that may make one think it’s complicated. But franchising is where one party grants another particular rights or authorities, making it a marketing strategy that’s well suitable for a business expansion.
Franchising has a lot to it, and it begins with a contractual agreement between a franchisee and a franchisor. This agreement gives a franchisor a chance to authorize a franchisee to act as a dealer and sell their products, services, or goods using their trademark and brand name. For example, there are many senior care franchises in the us, which is something you might not think of being in a franchise.
Once a franchisee is given authority to be a dealer, they get to pay a commission or some share of revenue to the franchisor. Franchising has some great pros, such as it’s a great way of expanding without having to incur additional costs, and it also helps with building a brand name.
If you are considering trying franchising, there are numerous factors that you need to know, such as the responsibilities of the franchisee vs. franchisor, the requirements needed, and more. To guide you, here are five more things to know and keep in mind before settling on any decision.
- A Disclosure Agreement Document Is Needed
A disclosure agreement document is usually presented to give a franchisee some information about the franchise system, a franchisor, and agreements that allow them to make the right decision.
This document may include different sectors, including litigation and business experience with professional information about the franchisor, predecessors, and affiliates. In addition, there may be a bankruptcy sector that contains information about the franchisor and initial fees together with its range and factors.
The agreement may include other fees, initial investments, franchisee obligations, financing, advertising, computer system, territory, and patents. You may also get patents, copyrights, obligations to participate, trademarks, services, and trade names.
- No Experience Is Needed
In most cases, whether someone is starting a pool cleaning franchise, setting up a store under an established name, or whatever it is they are franchising, franchisors tend to provide a package that offers a training program that allows the inexperienced franchisee to gain some insights into franchising. So, although experience is a plus, you don’t need it to get into franchising.
Most training packages aim to provide the skills needed to run a successful franchise. One important thing to learn is gaining people skills since you may need to interact with customers and build a great reputation.
You may also learn how to work with numbers and avoid getting yourself in financial trouble to keep up with the costs of running the franchise. Additional skills that you may gain include working hard, taking advice, following a system, and motivation driven by results.
- Your Franchise May Require Royalties
In franchising, once a franchisor gives a franchisee a chance to use their trademark or brand name when selling their products, goods, and services, they charge royalties for every location.
Royalty charges tend to vary widely depending on the franchisor and the agreement. Some charge a flat fee that remains constant, a percentage of sales, or both payments combined plus royalties on gross sales.
When going into a franchise, you should expect the payment scheme to differ depending on the company. And these payments are usually expected to roll out quarterly or monthly and are usually calculated differently depending on the agreement set by the franchisor.
- There Is A Franchise Agreement
A franchise agreement provides a legal relationship between a franchisor and a franchisee. This contract grants the franchisee the right to operate any business, provide services, or distribute goods associated with a franchisor’s trademark.
Normally, a franchise agreement tends to last between ten to twenty years, and it spells out the conditions under which a future franchisee is qualified to be an owner. The contract may also include the franchise territories and boundaries, which regulate the number of franchises in the same location.
It also includes the length of the franchise agreement, franchise costs, fees, and the training and support provided by the franchisor. The franchise agreements may also include everything about the trademarks, patents, and signs that outline how a franchisee is permitted to use them.
- Seeking Professional Advice Is Recommended
If you are new to franchising, you may need some help. If you’re expanding your franchise into new countries, you’ll need a business lawyer to help you to understand your legal obligations. Running a business in Brazil, for example, is totally different to running a business in the US, after all. Reaching out to a franchise consultant is also vital as they’ll help with financial modeling based on their experience of costs. There is no shame in enquiring about getting that extra bit of help, remember your franchise could be a totally new idea.
Franchise consultants tend to have adequate information, assess the objectives, and advise you on what strategies are great for your business. Your advisor may encourage you to carefully review the procedure of your objective and assets and then guide you on how to franchise your business.
Bottom Line
Franchising is a growing business model that helps a franchisee startup without building from scratch. This model makes selling much easier as clients are readily available as the target audience is already associated with the brand. As a result, if you think of getting into franchising, it might be time to identify your financial risks and develop mission-driven opportunities.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin