How Does the Franchise Model Work?

How Does A Franchise Model Work In India?

1. The franchise business is gaining so much popularity these days.
2. This is because business-loving people like to own a franchise, and there are many risks involved in starting a business from scratch.
3. New businesses face a lot of challenges in the initial stages - make a brand name, make the new products ready for the market, and create an operational system.
4. It needs patience and hard work for many years to gain a position in the market.
5. On the other side, franchising has many benefits over starting a business from scratch.
6. These benefits include enough support from the franchisor and already existing brand name in the market.
7. If this franchising concept interests you, and you plan to buy a franchise, it is necessary to understand the franchise model.
8. In this article, you will know the insights about how the franchising model works.

What Is A Franchise, And How Does it Work?

• A franchise is a kind of business owned by a person called a franchisee under the brand, trademark, and business model owned by a company called the franchisor.
• In simple terms, a franchisee operates a business by using the brand name and trademark of a franchisor.
• So, both franchisee and franchisor have a commercial and legal relationship with each other.
• In the franchise business model, the franchisee uses the brand name of a franchisor, and in exchange for that franchisee sells the products and services of the franchisor.
• Also, a franchisee pays the fee and signs an agreement with the franchisor.
• After all the legal formalities, the franchisee can open a new branch of the company.

Franchisee-Franchisor Relationship

1. In the franchise business, a franchisor and franchisee hold a strong relationship responsible for the brand's success.
2. Initially, the franchisor helps the franchisee by providing the training, marketing, product development, and sometimes offering loans.
3. As the relationship continues between the two, the franchisor provides enough support, so that the business of the franchisee grows continuously.
4. This franchisee-franchisor relationship benefits both.
5. The franchisee runs the business as they are holding it individually while getting the benefits of regular support from the franchisor.
6. On the other side, the franchisor obtains a new branch and expands its business to a new location and area.
7. It gives franchisors to gain benefits without spending for the business at a new location.
8. This franchising business also benefits the customers as they can get a big brand's products and services in their local area.

Types Of The Franchisee Ownership

Franchisee ownership is of the following types:

1. Single-unit franchisee: A franchisee having a single branch of the franchise is called a single-unit franchisee. This ownership is the most common type of franchise ownership.
2. Multi-unit franchisee: When a franchisee is successfully running the branch, they can choose to open more branches from the same franchisor. Such franchisees who own more than one branch of a franchise are called multi-unit franchisees.
3. Multi-unit area developer: Multi-unit area developers are responsible for opening a specified number of branches in a specified area within a specific time frame. The franchises follow this approach to expand their footprints in the varied market.
4. Market franchisee: Master franchisees are like the middleman between franchisee and franchisor. They are like multi-unit developers who are obliged to open a specific number of branches at any location in a certain time period. But the only difference is that the master franchisee can sell the franchises to other franchisees too.

Understand the Franchise Agreement and Related Sections

A franchisee and a franchisor sign a legal agreement before starting the franchise business between them. The agreement contains the below sections that you need to address and understand.

Trademark Usage

The main benefit of starting a franchise business is the right to use known trademarks. The trademark section contains the list of trademarks and the logos that the franchisee will use. Address the below two points while signing the agreement:

• Whether the trademark is in operation and well-known.
• Whether there is any restriction on the usage of these trademarks.

Franchise Location

This section contains the areas where the franchisees have permission to open the branch. You need to understand whether you have the right to work in that specific area.

Franchise Terms

This section contains information about the length of the agreement. Address the below points while signing for this section:

• Know for how long the agreement exists.
• If a franchisee has the right to get the agreement renewed.

Fees For Franchise

This section contains all the information regarding the mandatory fees related to buying the franchise. Address the below points as part of this section:

• What is the initial fee, and what will the franchisee receive in return for that fee?
• How much is the royalty payment, what is it charged for, and when this payment is due?

Responsibilities Of The Franchisor

This section contains all the duties and responsibilities that a franchisor needs to follow. These include:

• Training requirements
• Requirements related to participating in the business
• Requirements related to maintain and submit the records

Restrictions Imposed

This section contains all the information regarding the restrictions imposed on the products and services offered. These restrictions include:

• Quality standards needed and shared by the franchisor
• List of approved suppliers
• The approved sources of advertising and marketing
• Working hours
• Price of products and services

Agreement Renewal, Contract Termination, And Transfer Of The Agreement

This section contains all the information about the renewal, transfer, and termination of the agreement. These include:

• The rights that a franchisee has after the agreement termination
• Detailed information about the transfer of franchise agreement
• Detailed information related to the franchise agreement renewal

In Conclusion

1. These are the basic guidelines for a franchise business model and how a franchise works.
2. The information shared in this article will help you understand how the franchise works and guide you with a successful franchise business.
3. For more information, check out the related FAQs that most people interested in having a franchise have in their mind.
4. You can keep all the information in mind while deciding to buy a franchise.

Also Read:

1) How Small Businesses Afford Digital Marketing?
2) Does Commercial Solar Power Make Sense For Businesses?
3) 7 Different Types of Loans for Your Small Business
4) Hiring and Managing People Wisely: HR Mantras For Small Businesses

FAQs

Q. How does a franchisee become successful?

Ans. A franchise is a great business option that does not need any prior experience, and a franchisor help by providing the necessary training. Moreover, there is continuous support from the franchisor to grow the franchise profitable. However, the passion, work ethics, willingness to learn, follow the business model, and mindset to succeed are the characteristics that make a franchise business successful.

Q. I am planning to buy a franchise, but can I work with a partner?

Ans. The choice of franchisee being in partnership solely depends upon the franchisor. Most franchisors allow franchisees to have an operating partner or financial partner in their franchise business.

Q. Can a franchisee buy more than one branch of a franchise?

Ans. Yes, a franchisee can open more than one franchise branch according to the multi-unit franchising form. It helps the franchisees in growing their business and profits.

Q. Is it possible that the franchise contract terminates?

Ans. Yes, the franchisor has all the rights to terminate the contract with the franchisee if the franchisee breaches the agreement. According to the rules, a franchisor needs to send a notice to the franchisee as a chance to fix the breaches done and prevent the termination of a contract. The breaches include failure to meet the performance, franchise fees not paid, failure to send the regular sales report to the franchisor, etc.

Q. How can I get the required legal support for my franchise?

Ans. The franchise association owns a franchise supplier directory. This directory contains a legal category, which helps the franchisors and franchisees to identify the attorneys, who are already having experience in the franchising business.

Q. Are there any special laws for the franchise business?

Ans. There are some compulsory laws concerning the franchising business. These laws include pre-sales disclosure, trademark registration, apply for licenses or permits, and register with a government body. These laws need to have complied with, and franchisees can take professional help before starting the franchise business.

Q. Is it necessary to register a trademark while buying a franchise?

Ans. Mostly, the franchising businesses have a trademark registered so that they can protect their brand legally. Many franchisees even refuse to negotiate if the franchises have no registered trademark.