What Is Franchising?

By Alex Dimakulangan.

You are an unsatisfied worker, working more than nine hours a day and doing the same thing over and over again. Nothing is happening and sticking to it just made you old and tired.

Going entrepreneur came into your mind. But, with all those news about traditional firms failing left and right, the terror stop you from taking action.

But in the TV, internet, radio and newspapers there are news about companies offering franchising. You think that maybe franchising is for you, but you do not have any idea what franchising is.

What is franchising?

Franchising is a practice where an already established company allows another entity to use the its already successful business model. The franchisor (the company that provides the business model) and the franchisee (the entity that uses the business model) enter into a contract to use and capitalize on the company's successful business model and/or its existing brand awareness (most often called Goodwill) for a faster return of capital.

The franchisee then expends two types of payments generally. The first one is the franchise fee, which is a one time payment, and the other is the royalty fee, which is a recurring payment, for the continuous use of the business system and advertising costs. Royalty is usually 3-10% of the gross sales.

Franchising is a network of mutual business relationships that grants a number of people to share: 1) brand recognition 2) A successful method of doing business 3) A proven marketing and distribution system.

The most common misunderstanding I hear from clients is the phrase, "I want to buy your franchise". You are not buying the business model, you are capitalizing on it. But you will own the equipment needed for the business, though.

For a business to work as a franchisor, it must have a good track record of profitability and the business solution it employs is duplicable. Otherwise, that business is not suitable for franchising.

What are the benefits of franchising?

For the franchisor, the business will grow while lessening the risk and liability that comes with expansion. It is also an ideal way to gain more brand awareness.

For the franchisee, they are investing in a already recognized brand and on a successful business model. With a business of a 90% success rate, who can go wrong?

Article Source: http://interpret.zar.vg

About The Author
Alex is a franchise consultant and he focuses on micro franchising in the Philippines. To become a trusted franchise consultant like him, you can go to his website at Franchise Philippines and read his articles about franchising in the Philippines.