23 February 2020

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Franchising-New Way of Doing Business

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If you have made up your mind to become an entrepreneur, many decisions have to be made especially to grab the best way to get best rewards.. Today there is an array of business choices for entrepreneurs, like to start from scratch to buy an existing business, or to look out for franchising opportunities.

Franchising is a good place to start your business career. Today thousands of franchised businesses are scattered in the market, covering almost every conceivable industry from the well-known national brands to small opportunities. The often quoted definition about franchising is that it “allows people to go into business for themselves, not by themselves”.

A franchisor is defined as an entrepreneur or a business entity who grants the right to distribute its products, techniques, and trademarks to an independent operator. A franchisee, on the other hand is an entrepreneur who buys the right to use a specific trademark or business concept from a company who along with the rights to its business.

In order to do this, agreements are carried out which typically lasts from five to thirty years, with provisions for premature terminations on both sides, and the operation of the business owners on either sides are governed in terms of the franchisee agreement.

Advantages of Franchised business

For Franchisors

Once a brand and its formulae is designed and executed, franchisors can hand over their products to franchisees for a rapid business expansion at their capital and resources. This would greatly reduce the risks and expenses inherent in conventional chain operations. Additionally, the franchisor can leverage the franchisee to build a distribution network.

By giving franchisees, the franchisor is relieved of many of the mundane duties in connection with starting a new outlet like obtaining of licenses and permits and also the obligations in carrying liability insurance of the supposed outlets which will be taken care of  by the independently owned franchise units. In many cases the franchisees bear the operational expenses of the units and the expense of employers employed with them.

For Franchisees

The chief benefit of franchising for a franchisee is that you receives a complete package with a trademark, an established product, suggestions for marketing methods, inventory etc. Thereby you will be able to capitalise on business format, trade name, and support system provided to you by the franchisor. Associating with an established company provides instant name recognition and also access to ongoing support to success.

Franchises comparatively have lesser failure rates than start-up businesses, as we are buying a concept which is already been worked out by someone else. Franchisees normally receive greater incentives than direct employees as they own a direct stake in a branded business and the tangible assets that wear the brand name.

Many franchisors provide their franchisees with various tangibles and intangibles like financial and accounting systems, training, advertising and marketing assistance and inventory management. They'll show you the techniques that have made their business successful and the franchisee can utilize the expertise guidance provided to them in their developing stages.

Some companies will help you with little upfront cash to finance during the initial days. They also may help in site selection so as to ensure that your business is located in an area where it can thrive. You may as well benefitted from the national or regional promotional campaigns from the franchisor.

Disadvantages of Franchised business

For Franchisors

An incompetent manager can be replaced easily, but removing an incompetent franchisee who owns a tangible asset of your business is difficult. An incompetent franchisee can easily damage the goodwill of a brand by providing inferior services. If a franchisee is happened to be cited for any legal violations, he will face the legal consequences but the franchisor's reputation could still be damaged.

For Franchisees

Becoming a franchisee means conforming yourself to a set system of the franchisor, and you must be willing to follow his business formulas and operating standards. This very essence of a franchise itself- i.e, purchasing and operating a proven concept can make some entrepreneurs, especially the one’s with a more entrepreneurial stuff in him feel that you're more of a manager than a boss. This may create some difficulties in business operations for such people, to conform his business into the systems initiated by someone else.

Just as a franchisor's reputation is beneficial for your business, the franchisor's problems are also your problems. So if the parent company hits hard times, your business may also suffer depending on how closely you're tied in.
The franchise agreement is a binding contract, which at times can be quite restrictive. It may lock you to certain business practices, fees, and even the look of your business.

Opening and operate franchises of some companies are quiet expensive, as the upfront costs are high, and the ongoing royalty fees will have a major impact on your cash flow.Franchisees are like buying a label accepting that there is risk as there in any type of business, and there is no promised success or profits by the franchisor.

Thus, as in any business, franchising opportunities has its own plus and minus points. If you have made up your mind and you feel that franchising business is fit for you, you can step into it confidently with a thorough market research, hard work and dedication- definitely success will be yours.

Also read

 Franchising: Scrutinise before you invest


Franchising-New Way of Doing Business

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