FranchisingIndrajit C

Franchising is the practice of using another firm's successful business model.

The word 'franchise' is of Anglo-French derivation - from franc- meaning free, and is used both as a noun and as a (transitive) verb.

For the franchiser  the franchise is an alternative to building 'chain hotels' to dispense goods and avoid investment and liability over a chain. 

Franchising

Businesses for which franchising works best have the following characteristics:

Businesses with a good track record of profitability.

Businesses which are easily duplicated.

As practiced in Hotels, franchising offers franchisees the advantage of starting up quickly based on a proven trademark, and the tooling and infrastructure as opposed to developing them.

Business Model

Franchisor rules imposed by the franchising authority are usually very strict and important in most countries need to study them to help the small or start-up franchisee in their countries to protect them.

Besides the trademark, there are proprietary service marks which may be copyright - and corresponding regulations.

Franchisor rules

Each party to a franchise has several interests to protect. The franchiser is most involved in securing protection for his trademark, controlling the business concept and securing his know-how.

This requires the franchisee to carry out the services for which the trademark has been made prominent or famous.

The franchisee must carefully negotiate the license.

He, along with the franchiser must develop a marketing plan or business plan. The fees must be fully disclosed and there should not be any hidden fees.

Obligations of the Parties

Single-Unit A single-unit franchise is the most common

type of franchise available.

It is a franchise that the franchisee purchases directly from the franchiser or an appointed agent of the franchiser, and is for a single business unit in one physical location.

Types of franchising

A multi-unit franchise occurs when the same franchisee is granted multiple units by the same franchiser.

These units can be within a specific geographic region negotiated between the two parties, or it can be multiple units with random geographic locations.

Multi-Unit

An area development franchise agreement is typically offered to companies or individuals that have already set up successful franchises for other franchisers.

A franchisee is given a geographic territory and must begin to develop units within that territory.

Area Development

A master franchise owner is similar to an area development franchiser in that he or she is given a geographic region and cost breaks for the agreement;

But the master franchisee can also sell franchises on behalf of the franchiser and collect part of the regular royalty for the franchise as well.

Master franchise

In this case of the absentee franchisee, the agreement is made in advance that the franchisee will not be the day-to-day operator of the franchise;

But that he or she will be responsible for reporting royalties and income to the franchiser.

This allows people to have a franchise without leaving their regular employment.

Absentee Franchisee