Franchising Is a Partnership

You are either the franchisor or the franchisee if you enter into a franchise agreement.

Franchising is essentially a partnership agreement between a company and an individual or group of individuals to use and fully utilize existing systems and brands.

It should be beneficial to both parties.

This collaboration should benefit both the franchisor and the franchisee.

As an example:

Using the franchise model, the franchisor sees their brand expand into new markets through franchisees. This is done at a lower cost and with less risk than if they did it as a separate enterprise. They also see costs that would otherwise be theirs absorbed by the franchisee and gain revenue in the form of royalty fees.

The franchisee benefits from an existing brand, which frequently has a proven business system in place and may also have brand loyalty and an existing consumer base. They are also entering the business world alongside those who have previously worked in the chosen industry, so risk is often greatly reduced.

It’s all about giving and taking in franchising.

As previously stated, franchising is mutually beneficial when done correctly, which is accomplished through compromise and adhering to the terms of the franchise agreement signed by both parties.

A franchise partnership, like all healthy relationships, is governed by the principles of give and take.

What the Franchisee Brings to the Table for the Franchisor

The franchisee pays a one-time franchise licence fee at the start of the franchise agreement.

Renewal Fees – a recurring fee paid by the franchisee to renew the franchise licence, typically every 5 or 10 years.

Royalty Fees – an annual fee paid to the franchisor based on a percentage of the franchisee’s unit profit.

A legal commitment to distribute the franchisor’s product or service and to operate in accordance with the franchise agreement.

What the Franchisee Gets from the Franchisor

Distribution Rights – the right to market a product or service under the franchisor’s trademark or trade name.

Business Model – the right to market the franchised product or service using the franchisor’s operating methods.

Prior to opening, the franchisee and sometimes key staff members receive online or in-person training.

Set-Up Assistance – assistance with the selection of a location, fit-out, first stock, opening announcements, and the launch of a new franchise unit.

Ongoing Support – ongoing assistance with day-to-day business operations, stock, sales, and marketing promotions, among other things.

Every franchise is unique.

Before proceeding with any opportunity, it is recommended that you examine each franchise opportunity individually, take nothing for granted, and ask as many questions as possible. When you are close to reaching a franchise agreement, make sure to hire legal and financial advisors to see you through to the other side safely.