Things to Know Before Starting a Franchise

Are you aware of the term “Franchise”? If yes, then do you know how it works and what are the possible pros and cons of building up a franchise? A franchise is a term widely used in the business and marketing industry, where an individual (franchisee) gains access to the name, trademark and business system of a company through obtaining its license. It establishes a relationship between a franchisor and a franchisee, where the franchisor provides his company’s rights, a privilege to pursue business, and support of training and management to the franchisee in return of a compensation amount, generally franchise fee and revenues. Franchising greatly helps in business expansion and is beneficial for the ones who are new in this market and can not afford to take any risks, such as those associated with start-up companies. Also, there is great support from the people who are into this business already. There are a great number of options you look for when you are starting a franchise, such as the cafes, restaurants, real estates, car industries, and so on.

Types of Franchises:

A business format franchise, product franchise and manufacturing franchise are categorised as three different franchises. Business format franchise, which is also the most common type, is the one where franchisor permits the franchisee to continue with the business trade in exchange of franchise fee. If you are the franchisee, you have to follow the rules of the company and gets assistance and marketing strategies of the company in return. Product franchise is where you, as a franchisee, would be specifically dealing with the sales of the products given by the business owner or franchisor. In return, the franchisee gets access to the trademark and campaigns for promotion. Manufacturing franchise is where you (franchisee) have the right to get the products manufactured and sold if they have access to the name and trademark of the franchisor’s company.

Benefits of Forming a Franchise:

There are a lot of reasons why individuals opt for running a franchise rather than setting up their own businesses. Most importantly, running a franchise makes you less prone to debts, as you can acquire the resources of the other companies and also, there is no need to worry about the capital as well. Other than this, there are high chances of gaining profits and you are less likely to go through losses. Moreover, assistance is provided by the ones who already have enough experience in this business, so you are not required to put many efforts to run a franchise. The company already has gained a lot of reputation in the past years, so you are not required to work on that too. Overall, there is less risk in building up a franchise business than any other business.

A franchise business may have several benefits and advantages for those who are planning to start it, but there can be some issues associated with them as well. One major problem you will encounter is that you would be unable to do most of the things on your own. You are supposed to follow the rules of the company entirely and the opportunity of decision making, regarding products for sale and the tactics to work, will no longer be in your domain. Also, you are compelled to paying the franchise fee due to which you would be unable to generate large profits in future.