What is a Franchise Business?

In this article, we have covered the whole mechanism of Franchise Business, how it works, what do you need to start a franchise, and much more. Read on to know more about the franchise business opportunity.

By Content Writer
What is a Franchise Business?

Starting a new business is probably the hardest choice you can actually make. To begin with, you need to have a smart idea, after that you need to plan the marketing of the business or brand, sales, employment for the staff, and so forth. At that point, you need to deal with the product strategy and finally, raise funding to execute your project. All these procedures can be a ton of work.. correct? This is the place where Franchise Business can help you. 

What is a Franchise Business:

A franchise business is the expansion of a current successful business, executed in a similar manner by which the main business operates. A franchise is a type of license that allows you to use the franchisor's business model, processes, and trademarks. 

It allows the franchisee to sell a product or service under the franchisor's brand name. In exchange, the franchisee usually pays the franchisor an initial start-up fee and royalty fees. The relationship between the franchisees and the franchisor is contractual. 

The Process to Set-up a Franchise:

1. If you want to buy a franchise business there is an initial fee to buy the rights of the business, its methods, equipment, marketing techniques, and so on.

2. As you purchase the rights of the business you are interested in, you also get access to trademarked things of the brand such as slogans, brand name, logos.

3. The franchise might also select a specific location for the selling of the franchisor’s services and products.

4. 5- 10 years is a basic tenure of the agreement. In many cases, the time to renew the time period is also available.

5. As the business starts off, there are royalty fees which might be on the annual basis or it depends on the agreement.

6. The amount of royalty fee is calculated on the basis of sales made by that franchise retail outlet.

 

The contract is signed between the franchisee and the franchisor.

Note:

1. You should be aware of the fact that you are not buying the rights to products of the brand but you are only buying the rights to use the name of an already successful brand for selling the products and services.

2. The strategies of the proven business model such as the methods involving the uniforms, the pricing, etc would remain the same as the actual business model.

3. Before investing, be clear about the franchise you are going for, you can get in touch with professional brands that deal only with these types of things. They can help you out and make things more clear for you.

 

Understand the pros and cons of franchise business before investing in a franchise business should be your main focus. Let’s discuss some points before moving forward:

Advantages of buying franchise business rights;

1. Risk – Already tested and proven. The risk regarding the profits of the franchise business is very low.

2. Training – You get hands-on training on the already tested business model.

3. Marketing Strategy – You don’t have to work on the marketing of a franchise business as the business model is already tested and successful. The franchisor has already made its name among the populace.

4. Support – There are all kinds of support provided by the brand to the franchisee, whether it’s about selecting a location for the franchise or any other.

 

Disadvantages of buying franchise business rights:

1. Initial Fees – It is the cost of buying the license. The fees vary from brand to brand but at par, it is almost the same. It costs a lot. Typically, it begins from several lakhs and goes up to many Crores.

2. Royalty fees – This is estimated on the basis of the total sales of a specific franchise. It must be pay at regular intervals, might be on a monthly or annual basis. It can be from 5% to 12% of the monthly sales.

3. Bound with Rules – Even after buying the franchise, you have to follow the rules and regulations that are pre-decided. 

4. Fund for Marketing – In some cases, the franchise might have to pay 1 or 2 % of the sales.

5. Selling your Franchisee – The buyer must be approved by the franchisor, it just cannot be sold to any random buyer.

After considering all the pros and cons of a franchise business, you should also consult a professional franchise expert(franchisee attorney). They will help you clear your doubts regarding the franchise business model and also make you understand the franchise agreement completely before actually signing it.

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