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What Is A Franchise: The Basics

Aug 12, 2021

What Does a Franchise Represent? Franchise (also known as franchising) refers to a way of selling products and even services. Franchising involvesw a franchisor (a person that creates the brand’s trade name or trademark) and a business model.

A franchisee pays money as a way of royalty. There is frequently a starting fee to obtain the right under the franchisor’s name and their system. Therefore, the franchise represents a contract between the parties.

However, this term refers more to the franchisee’s business. Two kinds of relationships regarding franchises exist in economies worldwide. The most well-known type is business format franchise. This franchise type of franchise gives the franchisor its name, logo, products/services, and a complete system for running the company. The franchisor usually provides site selection support, development, training, quality control, brand standards, and marketing strategies to the franchisee.

Although it’s less common, product distribution franchising typically has higher sales than the previous type. You can find examples of this second type of franchising in the car, bottling, and other industries that focus on manufacture.

Franchises Center Around Relationships

The first thing that pops into mind about franchising for many people is the focus on legal matters. Yes, the legal aspect of franchising is crucial. However, it isn’t the only thing you need to know about franchising.

Franchising in its base is about how franchisors support their franchisees and deliver a product or a service that meets the brand standards.

Franchising Is All About Brands

The brand of a franchisor is the asset with the highest value. Consumers decide on their own where to shop and whether they should visit that particular company frequently because of what they think or understand about what the brand represents.

Consumers don’t care about the actual owner as long as they are satisfied with what their brands deliver. You will be building various relationships, such as ones with buyers if you are a franchisee.

Customers will likely choose to buy from you due to your offer’s quality and relationship with them. They trust the brand to deliver on their expectations. The franchisor and the franchisees in this so-called system depend on you to do that.

Support from Franchisors and Systems Are Important

Franchisees can expect excellent support from franchisors who provide tools, systems, and support to help them comply with the original brand’s standards and satisfy customers.

Franchisees think you’re capable of managing your businesses to improve the company’s reputation in your local market.

You should evaluate the support you will receive and how the franchisor manages the advancement of the product/service to meet consumers’ wishes and needs that are constantly shifting when choosing a franchise system.

Franchisees can expect a couple of services from franchisors such as an internationally recognized brand, selecting the location and assistance with its development, building your capacities and the ones of your entire team, research and development of innovative products/services, support at the headquarters and on the ground as well as franchise marketing and advertising, both initial and ongoing.

It is essential to choose franchisors who are consistent and effective when they enforce the required standards. As such, that’s crucial because the brand standards are, in a way, intended to shield companies-franchisees against the inappropriate behavior of others who share their brand.

Customers view the entire system as a hub of activities, which offers a quality product/service, so everyone prospers when one entity does that. And vice versa.

Franchise Law Basics

“Contractual Relationships are the Basis of Franchising”

Franchises may look the same as other chains, which are consisted of branded companies, but they are pretty different. The brand owner does not manage the locations of all franchisee-owned businesses and their daily activities. The franchisee’s role is to serve the customer.

The contractual relationship is exceptionally stressed out in franchising. What’s more, this relationship exists between a franchisor (licensor) and a licensee. It enables the company’s owner to utilize the brand and methods of the licensor to sell products/services. Every franchise can be called a license. However, not all licenses are franchises under law. As a result, a lot of people can be puzzled.

A franchise in the U.S. is a kind of licensing arrangement. As such, the Federal Trade Commission defines it that way. A franchise can generally occur when franchisees are granted a license by the franchisor to use their trademark. Also, when the franchisee’s business is defined through marketing products/services with the methods applied by the franchisor. The franchise definition implicates that the franchisor offers support to the franchisee and exercises specific controls. Eventually, franchisees pay a fee to the franchisor.

Each state has defined what a franchise is in different ways. For instance, some states may mention a marketing plan as well as the community of interest. Understandably, the franchise business definition regarding franchising may vary depending on state laws. Therefore, you shouldn’t rely solely on the federal definition of franchise business when understanding the requirements of each state.

In other words, a franchisor licenses a business’s trade name or popularly known as the brand and its method of doing business to another individual or business operating in a particular territory (the franchisee), who agrees to follow the contract’s terms (the franchise agreement). Moreover, the job of the franchisor doesn’t stop here. Mainly, they offer support and guidance to the franchisee and exercise control to ensure compliance with brand guidelines.

The franchisee at first pays a fee to the franchisor. This fee refers to the franchise fees and the ongoing fees so that companies can freely use the tradename of the franchisor and methods of doing business. Franchisees are responsible for managing their businesses that aren’t dependent on the franchisor’s business. They also take all benefits or risks independently, depending on the company’s business results and abilities.

A Final Word

A franchise investment is a great way to make a profit. Before you sign any franchise agreement or make any investment in a franchise, it is essential to do your research, learn about the system, and seek the advice of professional lawyers that have experience in franchising.

Your Franchise Journey Starts Here

Whether you’re just starting out or already know the right brand for you – you’ve come to the right place. Fransmart helps franchisees use the power of compounded returns to own and operate multiple franchise locations throughout your desired market to grow franchise wealth.