A franchise is a business whereby the owner licenses its operations, including its services, products, branding, and skills and knowledge, to another person or company. For this, the parent business company (Franchisor) will charge the franchise fee. The parent company is called the franchisor and provides licenses to the franchisees.
The franchisee typically pays a lump sum initial fee (franchise fee) or a perpetual fee (known as royalty) to the franchisor for use of the franchisor’s trade name and operating methods, resources, and services. The fee is as per the agreement which varies according to the business.
Once the franchisor approves the franchisee for the business, the franchisor is responsible for the day-to-day management of his independently-owned business in India and for-profit or risk loss based on his own performance and capabilities.
Is it a good idea to choose a franchise model business?
All entrepreneurs want to start their own business. But it’s not easy for everyone. Starting a new business is one of the most difficult decisions. First, you need to find a great idea, then create a plan for marketing, branding, sales, hiring, etc. Then, you need to work on the product, quality, and marketing strategy and finally, need to raise capital to execute your plans.
For this reason, most entrepreneurs are unable to start their business or get stuck in between these steps. And the solution to all these problems is to choose a franchise model business as per your business plan.
The franchise business model is huge. There are many types of businesses available to choose from, maybe you can find the business according to your passion. There are different types of businesses available from education and technology to food and automobiles. And the best part about it is that you can choose as per your budget and capability.
What are the types of franchise business models?
There are many franchise business models available today. Generally, there are three types of franchise business models that are mostly chosen by popular brands.
Business Format Franchise: This type of franchising helps in expanding the core business by allowing individuals to buy a business with an established brand name. This means that in this business all the different aspects of the franchisor are copied and replicated at a particular place. KFC, McDonald’s, Domino’s, etc fall in this business category.
Product Distribution Franchise: In this model, a franchisee has the right to distribute the products provided by the manufacturer. The franchisee is required to pay for using the franchisor’s or manufacturer’s trademarked products. Personal care products, electronic products franchises, etc. fall in this business category.
Manufacturing Franchise: This type of franchise is common among food and beverage companies. Through franchise creation, a franchisor gives a manufacturer the right to produce and sell goods using its name and trademark.
What are the benefits of a franchise business?
The franchise business model is considered to be the easiest way for entrepreneurs. People look for business ideas, but they doubt whether their business will be successful or not, which is why they are afraid to take risks. But, in a franchise business, the risk factors are less than that of a start-up as you get a pre-established brand business model. Some of the main advantages of a franchise business are as follows:
- Limited risk and low failure rate
- business support
- Pre-built market reputation, branding, and customer
- Easy availability and effective management of proven resources
- high rate of profit
- Higher rate of success than startups
What are the disadvantages of the franchise model?
Every business model has at least some drawbacks. This business model does not differ from this rule. But if you compare cons with benefits then cons are negligible. Some of the negative aspects of this business are given below:
- restricted and strict rules
- The initial investment may be higher
- Financial secrecy and lack of control
- The franchisor has to pay a share of the profit
Choosing the right franchise is all about matching your personality, skills, experience, and motivation to a particular business. Investing in a franchise or becoming a franchisor is a great opportunity. But before you choose a franchise investment and sign a franchise agreement, do your homework, understand what the franchise system is offering, and get the support of a qualified franchise attorney.
