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Franchising Basics & Tips for Franchisee Entrepreneurs

Updated on December 11, 2017

How Does Franchising Work?

Franchising is a method of doing business whereby a franchisor grants licenses, methods, trademarks or systems of doing business to a franchisee and for that franchisor is allowed to get franchise management fee or royalty fee. Basically franchising business can be understood as a privilege or right officially provided to any person or group of people by any established business enterprise which has well known existence and have great brand-name recognition. It is one of the most lucrative methods of distributing services and the most beneficial thing is its ability to utilize the available business opportunities due to the proven markets and products of the franchisors through which it can definitely enhance the chance of business success for the franchisee.

Some of the Globally Established, Quite Successful & Widespread Franchised Businesses are:

1. McDonald’s

2. Subway

3. 7-Eleven Inc.

4. Hampton Inns & Suites

5. H&R Block

6. Great Clips

7. Dunkin' Donuts, etc.

Globally Franchising is one of the most booming economic models as Franchising Business Approach encompasses a lucrative business association which allows people to share a successful marketing and distribution system along with brand identification and a proven method of efficiently running business. It is extremely advantageous for both Franchisee and Franchisors and few of the main advantages are explained below:

Advantages for the Franchisee:

1. With the assistance of franchising it becomes quite easier for the franchisee to display their services and products that further offer easy purchasing and stocking.

2. It quite competently avoids all the needless trial and error period in starting of any business.

3. Franchisee will get a proven business concept that comprises a great success record to run and lucratively earn.

4. Franchisee will get an advantage of operating under a recognized trade name that will be quite helpful in easy and effective marketing.

5. Franchising will offer lucrative opportunities in which investment costs will be lower for franchisee while his profit margins will be quite higher compared to other ventures.

Franchisor and Franchisee Relationship

Advantages for the Franchisors:

1. Franchising offers different administrative and managerial advantages to the franchisors because with franchisee bigger business enterprise will have different smaller central organizations that will be quite advantageous and cost effective as managing labor forces will become quite easy due to the reduction of turnover of key staffs.

2. Franchising also comprises different strategic advantages as with the help of this franchisor can spread his uncertainty into the number of different locations by using the investments of other people. Henceforth franchisor will be benefitted with multilevel marketing along with rapid network expansion and superior understanding of continuously wavering requirement of market.

3. There are many operational advantages associated with franchising as it offers uniformity of all procedures along with well organized operational mechanism that reflects on consistency and enhanced productivity along with better quality. Franchisors will be awarded with different small central organizations to deal and hence will be offered with easy operational control.

4. Franchising also ensures improved cash flow along with bigger returns and greater profits on the investments of franchisors and for all such a great amount of profits their advertising, operational and distribution costs will be effectively reduced.

Tips for the Franchisee Entrepreneurs who want to own A Franchise:

If you are an entrepreneur and thinking to buy a franchise then that can be a sort of burdensome task as there are millions of franchises in almost seventy different industries functioning all around the world. Therefore for you some of the noticeable facts to pay attention are explained below with the help of which your burden will be conveniently alleviated:

A. Firstly you should ask yourself certain questions and while answering them you need to be very objective. Most importantly you need to ask why you wish to own any franchise and if it’s answer is to get rich by going on an easy street and not doing any hard work then it is guaranteed that franchising will not meet your expectations and hence will not be as much profitable as it can be. Therefore if you are OK with a little hard work and amongst those people who have the dream of owning their own business by being their own boss and hence having their complete control on their life then go ahead, franchising is for you.

B. Before finalizing the decision of owning a franchise you need to be very realistic and fully critical about all your strengths and shortcomings. Only by knowing that, you can invest all your strengths in the most enthusiastic manner into the right type of franchise. Never scrutinize all sorts of franchise opportunities available as it is immensely important to select only those that coincide with your strengths quite constructively.

C. Proper research also plays one of the most significant roles in finalizing the franchises and for that you need to compile a list of different franchises that interest you. After that you may go through their websites, fix meetings with the manager or director of that franchise.

D. You should also make call to different franchisees of that franchisor in which you are interested and take their point of views by asking question like would they wish to buy the same franchise again as that will help you in understanding the market reputation of the franchisor.

E. After doing all this it is very important to mention here that when you get the franchise disclosure document or prospectus, you have to study all their idiosyncrasies properly and along with that you also need to check out their financial history and different experienced people who are in key positions. You should also go for a company that has been in the business for at least three years as mostly longer they are in business will be better for you.

F. Then comes number of your franchise agreement and you have to closely examine that as this agreement will be the contract in between you and company. Mostly these franchise agreements are biased in the favor of franchise which can include lots of pros and cons for you as it is possible that franchisors can be unfair in their dealings with you. Therefore you should properly heed upon all the term and conditions of your agreement so that you can go ahead with your venture without facing any setback.

G. It will also be beneficial for you if you go and visit different operational units of your franchisor as at your personal visit manager or owner will be more forthcoming compared to over the phone and hence you will get most lucrative experience before settling your unit.

H. If you have gone through all the over mentioned points and everything seems good then you can contact the sales rep of the franchise and try to get as much definitive sales information as much as possible. Mostly franchisors do not make their earnings claims but you will be able to get information with which you can figure out gross sales. If everything seems good then you can go for it and still if you have any sort of uncertainty then you can also consult to any specialist advisor.

© 2015 Shivendra Tiwari


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    • Shivendra Tiwari profile imageAUTHOR

      Shivendra Tiwari 

      3 years ago from New Delhi, India


    • Larry Rankin profile image

      Larry Rankin 

      3 years ago from Oklahoma

      Interesting process overview.

    • Shivendra Tiwari profile imageAUTHOR

      Shivendra Tiwari 

      3 years ago from New Delhi, India

      thanks Sandyspider.

    • Sandyspider profile image

      Sandy Mertens 

      3 years ago from Wisconsin, USA

      Once again, your hubs are very informative for the entrepreneurs.


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