You you are an unhappy worker, working more than eleven hours a day, and noticing playing by the rules does not give you what you wanted and it only made you old and busy.
Going into business came into your mind. But, with all those news about traditional businesses failing left and right, the terror prevent you from taking action.
Yet, you still find in the paper, in the TV and in the internet, companies offering franchising. Maybe this is the type of business for you. And you are intrigued. You ask yourself, what is franchising, anyway?
This blog post will tackle the definition of franchising.
Franchising is a practice where a corporation allows another entity to use the company's already successful business solution. 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 solution and/or its existing brand awareness (most often called Goodwill) for a faster return of capital.
In return, franchisees pay two payments in general. First is a one time payment, called the franchise fee, and the other is royalty fee, which is a recurring expense, for the continuous usage of the business solution, advertising and training costs. Royalty is usually 3-10% of gross profit.
Franchising is a network of interdependent accounts that allows a number of people to share:
• A brand identification
• A successful method of doing business
• A proven marketing and distribution scheme
That’s pretty what much franchising is.
One common misconception about franchising is the phrase, "I am buying a franchise". You are not buying; you are capitalizing onto the business. What you will own are the physical assets that are needed to act upon the franchise, like the equipment and building.
For a business to work as a franchisor, it must have a good track record of profitability and the business model it employs is easily duplicable. Otherwise, that business is not suitable for franchising.
What's so great about franchising?
For the franchisor, the company can grow and gain more chains while lessening the traditional risk and liability of doing so. It is also a great way to gain more brand recognition and reputation.
For the franchisee, they are capitalizing in an already proven business solution and recognized brand. In fact, a franchising business is 90% proven to be successful. With a success rate like that, who can go wrong?
About the author:
Rothman, also known as Kapalbility is an internet marketer and a franchising expert, specializing in small business franchise businesses in the Philippines. Learn from him through his blog, Franchise Philippines.
