Ideas Pertaining to Starting a Franchise Ideas Pertaining to Starting a Franchise INTRODUCTION TO FRANCHISING: Beginning in the 1850’s under the initiative of the Singer Machine Company, Franchising has developed become one of the most prominent business venture in the contemporary business arena. In this unique business method, the company, franchisor, sells selling rights to the franchisee. The entire business venture seems an unchallengeable notion, there are many cases where franchise initiatives have failed or succeeded. Hence it all boils down to the fact that running of a successful franchise initiative requires certain technical and research oriented methodologies that need to be addressed and found a solution to.
There is no doubt, however, that franchising creates a lot of value addition for both the parties (Levy & Weitz, 2012, 532) FUNDAMENTALS OF FRANCHISING: The core concept related to franchising venture is that the franchisor outsources the right to use its trademark and legal label to the franchisee at the cost of a franchising fee. The franchisee then operates the business on its own, only using the trade name and trade mark of the franchisor.
In addition to the franchising fee, the franchisee also has to pay a royalty fee which is normally in proportion to the sales of the franchisee. In certain cases, the parties agree to define an absolute threshold beyond which, if sales increase, the franchisee reduces the amount of royalty paid to the franchisor. This concept is called as skidding scale royalty valuation (Levy & Weitz, 2012,533). On the very basics, the both the parties engaged in the venture can gain from this initiative. The franchisor can use franchising as an investment saving profitable business venture, while a franchisee can use this medium as an effective business initiative to boost sales early in the career of the business.
In this way, both parties can benefit from this business venture. This healthy relationship and understanding is integral to the franchising business initiative. To enhance this relationship, many franchisors provide training and development to the staff of the franchisors. In this way, the relationship gets embedded in the nature of the business. Another benefit of this method to the franchisor is that, training creates consistency in the service of the franchise and other strategic business units that belong to the franchisor.
This is very important because franchising can be considered as a gamble with the trademark for the franchisor. If the franchisor fails to maintain consistency in any of its franchise, the entire reputation of the franchisor can be maligned (Levy & Weitz, 2012,533). Franchising can also prove to be a short coming for the franchisee. Apart from the royalty and franchising fee, the franchisee also has to invest heavily in the start-up costs of the business.
Since the franchisee will be working on the business of the well established franchisor, it will have to meet the high standards set by the franchisor to make the service consistent. The franchisee will also have to face a problem of dictatorship from the franchisor as the franchisor will be dictating all the rules and procedures to the franchisee. The franchisor, on the other hand might face heavy losses to its reputation in case of a mishap related to any of its franchises. STARTING A FRANCHISE BUSINESS The Investigation Process: The foundation process to the franchising business starts with thorough research about the possible business initiatives that can be started under the franchising option.
For this purpose, the concerned entities have to explore on the business options through magazines, trade fairs, and online searching. The franchisees have to start with a handful of available options so that they may choose the best option out of the lot (Levy & Weitz, 2012,534). Information Search: After selecting the prospective franchising option, the potential franchisee will have to ask for information about the franchise from the respective franchisor.
In many cases, the franchisor requires the franchisee to use the online form to request for information. Through the form, the franchisee also has to provide information about its own personal details. The regulatory requirements force the franchisor to disclose all the necessary details to the franchisee. This information is conveyed through the domain of a Uniform Franchisor Offering Circular. These circulars from all franchisors can help the franchisees to distinguish between the options that are available to them. Through this process, they can reach a feasible conclusion in the franchising decision (Levy & Weitz, 2012,534). Interview Process: The next step in the franchising process is the interviews.
In which both parties interview each other in order to have clear idea as to the terms of the trade. The franchisees look for imperative support mechanisms such as training, advertising and location support. Franchisees take keen interest in the financial health of the franchisor to get an idea about the future health of franchisors business. On the other hand, the franchisor is interested in whether the franchisee possesses the required set of skills to handle the business in an effective way.
The franchisor also looks at the financial strength of the franchisee to determine the prospects of the franchise (Levy & Weitz, 2012,534). Identifying the Best Option: After retrieving the desired information about the available franchise options, the franchisee should try to identify the positives and negative related to all the options. The franchisee should consider the future prospects of all the available franchise options to come to a feasible option. At various instances the franchisee should also look for the impact of franchise location on the business operations because the location can prove to be a defining factor in decision making (Levy & Weitz, 2012,535). Choosing the Best Option: After identifying all the positives and negative of the available franchise options the franchisee will have to choose the right franchise option considering the core idea and the feasibility reports.
The involvement of financial regulation is integral in this process as the financials can make or break situations. This process is followed by signing of an official franchise contract with the franchisor (Levy & Weitz, 2012,535). CONCLUSION: The prospects of franchise business are phenomenal.
It proves to be a profitable ground for both the franchisor and the franchisee. Hence, franchising business should be considered as a very feasible option but at the same a concrete abidance with the initial steps of franchising business is a defining factor in the business’s success. References Levy, M., & Weitz, B. (2012). Retailing Management 8th Edition. McGraw-Hill Higher Education.