1-What is Franchising?
Franchising is a business system composed of a brand name, a "system" or format implying the distribution of a product and/or service through a network. This system replicates itself with every new business partner (franchisee) that invests and becomes another member of the network. Franchising is a contractual agreement between two parties. Franchising is founded and first applied in America. There are almost 60 sectors working with this system. These sectors include ; Car Rental, Car Care, Services, Business Material, Shoes and Accessories, Interior decoration, Computers, Cosmetics, Retail Stores, Education, Food, Medical Supplies, House Appliances, Dry Cleaning, Fast-Food, Hospitality and Restaurants. Most of the variety is seen in the service sector. The dictionary meaning of the word franchise means privilege. From the French word "Affanchir" the word franchising has born. Franchisor is the one who gives the rights of the brand, which can be a service, product, and knowledge to another party for certain amount of Money. Franchisor is the protector and organizer of the franchising system created by the franchisees.
2. What are the types of Franchising?
Franchising System can be analyzed in two groups. Depending on the country, we can categorize it as International and National Franchising. According to the opportunities there is also Product and Brand Franchising and Business Format Franchising as sub categories.
A. What are National and International Franchising?
If the franchising contract is done between parties in the same country it is called national franchising, If the contract is between two countries than it is considered international franchising.
B. What is Brand and Product Franchising?
Brand and Product franchising started in America as a relation between buyers and sellers. In this relationship the buyer tries to identify themselves as the seller. Through the marketing of the same products by different buyers creates a unity amongst firms. The important thing at this type of franchising the use certain brand and product. Car and Truck Sales, Gas Station, non-alcoholic beverage manufacturers are some of the examples to this type of franchising.
C. What is Business Format Franchising?
This system requires the franchisor and the franchisee to work together not just by the means of the product but also on the management level as well. The simplest way to explain this is ‘selling the brains’ of the brand. Hotels, restaurants, retail stores, rental and counseling services are few examples. This format has been used more in the last years and consists of 4 main topics. These are;- Franchisor gives rights to the franchisee to use the name or the brand.
- Franchisor has control over the franchisee through the term of the contract.
- Franchisor helps and supports the franchisee through the term of the contract.
- The royalty is paid by the franchisee in decided terms.
3. What are the benefits of the franchising system to the franchisee?
Franchisee gets to benefit from an established brand that is experienced, successful and well-known with help and support of the franchisor.
- The international quality is achieved immediately..
- Customer trust is already established.
- Franchisor can provide personnel and training.
- The procedures such as hiring is easier with the support of the franchisor.
- The support in finances, accounting and marketing increases the chances of success-The risks of opening a small business is minimized
- Franchisees can benefit from the franchisors counselors and legal team.
- Franchisee can benefit from the past experiences of the franchisor.
- When starting up it is easier to get loan or lease for franchisees.
- The cost of advertising and marketing is minimized.
- The franchisee isn’t alone when starting up and the risk of bankruptcy is minimal.
- Although the initial payment is higher than a normal small business but the follow up expenses are much less.
4. What are the downsides of the Franchising System to the Franchisee?
- Creativity is lost.
- There is the obligation of following the rules and regulations of the franchisors.
- If the franchisee doesn’t pay attention then the franchisor ends up taking most of the profit .
- If the brand is widely known then it gets to be more costly.
- The products that the franchisee is obligated to buy from the franchisor can be costly than the market prices
- If the contract has loopholes then it can be more beneficial fort he franchisor.
- If there are trust problems between the parties then the franchisor can limit the franchisee in many ways.
5. What are the Benefits of the Franchise System to the Franchisor?
- The Money generated from the franchisee is profit fort he franchisor.
- The growth and expansion are achieved with minimum expenses.
- The increase in production creates an increase in the line of credit of the company.
-Faster and more selective distribution becomes possible.
- There is a constant circulation of information within businesses.
6. What are the downsides of the Franchising System for the Franchisors?
- The unpaid fees can be a problem.
- The payment for the services and equipment can be hard to collect.
- When the franchisee expects everything from the franchisor it can be a problem.
- A well- established brand can get a bad reputation because of a wrong choice of franchisee
7. What Should You Consider When Choosing a Franchisor?
The terms of the Franchisor is very clear in America. But it is not clear in our country. "American Associated of Franchisees & Dealers’ mentions 7 important facts about choosing a franchisor:A-The Franchisor has to sell his/her product or service in the best way possible.
Some firms try to sell the franchise first. The short term income from the stores can seem attractive from the long term income from the profits of the stores. Bu this way the franchisee can be confused in the long run. Well known big companies first came to Turkey to invest. The positive Picture created b these companies can be misleading. Like we see in every country fast growing franchises can come quickly but cannot achieve long term success. Franchisee has to take this into consideration.
B-Franchisors have to use the franchisees as their marketing toolThe franchisee has to choose franchisors that sell their own products and market them through catalogs, tv, etc. If the franchisor needs the franchisee for marketing purposes then their relationship has to be closer..
C-There has to be market demand fort he product/service.
If the business has so many duplicates in the market or not in demand anymore then the success may not be achieved.
D-The Brand has to be trusted and well-known.
The main reason to the investor to get a certain franchise is the brand recognition. One should also consider how the brand is known. The franchisee has to do a thorough market research
E-Franchisor should provide training, continuous support, and an effective marketing approach
F-The franchisor has to have good relations with the franchisees.
In order to have effective and successful business relations the knowledge and capability of the franchisor should be questioned.
G- The stores run by the franchisees has to keep good record of finances and sales.
8. What are the Obligations of Franchisors and Franchisees?
A- The obligations of the Franchisors
The franchisor has to follow these rules:
- Before working with the franchise system they have to work at a pilot store of their own. - The franchisor has to have the rights and royalties of a certain brand or service. - The franchisor has to provide training and support through the course of the contract.
B- The Obligations of a Individual Franchisee?
The individual franchisee has to follow these rules:
- They should be willing to work fort he improvement of the franchise system and keeping the brands reputation.
- The franchisee has to provide the franchisor with up to date information on finances and sales. They should be able to provide any paperwork when the franchisor asks for it.C- The obligations of both Franchisors and Franchisees
Both parties have to be honest. Franchisor has to warn the franchisee in writing if they don’t follow their part of the contract. The parties should try to reconcile their differences with honesty and dignity.
9- What are Ways of the Paying the ‘Franchising Fee’?
There can be different ways for payment of the franchisees: Lump Sum fee due at the signing of the contract. Royalty payments due at certain terms. Franchisor can also ask for extra fees for services provided to the franchisee. The payment type (cash, check, etc) will be decided by the contract.
10- What are stages of Establishing a Franchising Contract?
First of all the franchisor as to prepare a introductory package fort he franchisee. This package contains information about the firm and forms to be filled out as well as financial information. There are also three guidebooks that franchisor is obligated to give to the franchisee. First one is the book about the main company, second one is the book about the obligations of a franchisee, and third one about how to run the business also known as the ‘know-how’ book. Franchisee has to be very careful when choosing a Franchisor analyzing every aspect from finances to business conduct. At the same time the Franchisor has to do the same for the Franchisee. After getting acquainted the parties start negotiations. First they choose the business location. After that they decide on the capital, payment options and return on investment. According to the outcome the franchisee makes a decision and they sign the contract. The contract must be in detail covering all the aspects of the business. Upon singing the contract the franchisee starts the payments. The payments are made according to the articles of the contract and can be different for every franchisee. The franchisee then starts setting up the store. The decoration , training, and personnel is chosen with the help of the franchisor. Some franchisors will do everything fort he franchisee. After all the preparations the franchisee is ready to open for business. During this time a representative from the franchisor firm will be helping the new franchisee.
This article is taken from http://www.franchisedunyasi.com/english/index.php?option=com_content&task=view&id=84&Itemid=78