Ideas for Business Success: What is Franchising?

What is franchising? The word “franchising” is etymologically descended from the 14^th century Anglo-French word, “franchir,” which means “to set free.” One could therefore speculate that the franchising business model is based on a “setting free” or “liberation” of sorts.

Strictly speaking, the correct response to the question, “What is franchising?” is that it is a business model by which an individual gains the right to market the products or services of a given company for a specified period of time in a specified place.

Franchising has existed for a long time. Some say that franchising goes back to America in the mid-19^th century, when Albert Singer founded the Singer Sewing Machine Company. Singer would distribute his company’s sewing machines to customers far and wide and train them to use them. He would also sell entrepreneurs licenses that gave them the right to distribute the Singer sewing machines. However, there is evidence that franchising was practiced before that in Germany, among German brewers who conferred upon particular taverns the right to sale their ale.

Others trace the concept of franchising much further back in time, specifically to the Middle Ages. They view the practice by which leaders granted people the right to operate various commercial interests as a precursor of the present day practice of franchising. Perhaps a better example is that of the church and its expansion through Europe. Some might consider it offensive to describe the church as if it were a business, but there are certainly parallels to speak of. One might say that these parallels prove that successful ideas can be adapted to all sorts of situations.

 

Reconsidering the Question “What Is Franchising?”

 

However one chooses to answer the question, “What is franchising?” it is widely agreed that it is a popular business model. The success of franchising can be attributed to a number of factors that make it easy for entrepreneurs to get established in business. To begin with, franchising involves selling goods and services to a pre-existing market. Hence, one does not have to create a customer base from scratch. Also, with franchising, a successful business model has already been established, as has a brand name. Furthermore, the franchisor or originator of the franchise often invests in training the entrepreneurs to whom he or she sells the franchise. All of these factors save entrepreneurs time and resources.

So, in response to the question, “What is franchising?” one might respond that it is an innovative idea that has the proven capacity to “liberate” hardworking entrepreneurs and make successful businessmen out of them.

Master Franchising

There are two primary ways in which franchisors can guide and support their franchisees: direct franchising and master franchising. The first mode of franchising involves direct communication between the franchisor and franchisees. The second one involves indirect communication between the franchisor and franchisees through an intermediate figure, the master franchisee.

The master franchisee essentially takes on part of the role of the franchisor. He or she can only play this role in a specified territory. The role entails recruiting the franchisees and giving them the guidance, training and assistance they need. The master franchisee also receives the franchisees’ initial fees and royalty fees. He or she might have to pass some of these earnings to the franchisor if that is what their agreement indicates. In addition, the master franchisee has to pay a large fee to the franchisor at the beginning of their agreement.

 

The Characteristics of Master Franchising

 

Master franchising is advantageous for a number of reasons. These reasons could ultimately convince some to sign up for the position of the master franchisee. For one, the master franchisee does not need too much cash to begin with. Secondly, he or she can work as an independent business agent. This makes it is an attractive proposition for the up-and-coming entrepreneur. Master franchising sets the master franchisee right in the geographical vicinity of the franchisees. Hence, the master franchisee can communicate more efficiently with the franchisees and assist them more readily than the franchisor, who is located in another part of the country or in an entirely different country, can.

Unfortunately, master franchising is also characterized by disadvantages. These include the fact that the master franchisee cannot expand beyond the predetermined territory. Additionally, the contract that the master franchisee signs with the franchisor is typically a long-term one. Hence, if it turns out to have been negotiated to the disadvantage of the master franchisee, it can be a long time before he or she has the opportunity to renegotiate its terms or end it to pursue another endeavor. Master franchising is also beset by legal problems, likely due to the added layer of complications and inefficiencies that can only be expected with the introduction of an intermediate figure into the franchising process.

The franchisor that is keen on the rapid growth of the franchise but does not want to risk much of his or her own initial capital will typically opt to contract a master franchisee. If the franchisor contracts a master franchisee with the right skills and is able to match these with excellent resources, success is sure to follow.

How 2 Franchise a Business

For those looking to jumpstart their businesses’ growth, franchising could be a solution. However, they must first learn how 2 franchise before they can tell whether it is worth their time and resources.

Franchising does not guarantee success for every business owner who ventures into it. Because it is a long process and costs a significant amount, it makes sense to learn what kind of business makes a good franchising “candidate” and the logistics involved in transforming it into a franchise.

The best business to turn into a franchise is one that has shown consistent success after being expanded to encompass more than one unit. Thus, an ice-cream store with units at three locations, each of which has been raking in considerable profits for four consecutive years is likely to be a good candidate for franchising. Such a business will already have demonstrated that the idea behind it is capable of succeeding in different contexts.

This is not enough, though. The product being sold or the service being offered must be unique enough to make the business stand out, but it must also be appealing enough to guarantee that customers will be drawn to it. In addition, it is important to do market research to establish that there is a demand for the kind of franchise being proposed. These are all critical steps in figuring out how 2 franchise a business successfully.

 

How 2 Franchise: The Ideal Franchisor

 

Successful franchising has to do with much more than the business itself. It also has to do with the business owner. Thus, if the owner of a given business, say, the ice-cream store described above, is not comfortable with the idea of ceding some control, he will have a hard time franchising it. A business owner who likes her business just as it is and is not itching to see it grow is also better off maintaining the status quo. Learning how 2 franchise would simply be a waste of time for her.

Franchising is ultimately a course of action for a successful and ambitious person who has made a splash with his or her innovative ideas. A prospective franchisor also has to be able to envision himself or herself in the managerial position. This is because, once the franchise is established, he or she will be responsible for marketing it to prospective franchisees and playing a supervisory role. For the prospective franchisor, learning how 2 franchise will mean learning to play a lesser role on the operational side of things and adopting a primarily supervisory role.

Franchising Documents

Franchising can be an overwhelming process due to its associated expenses, labor and reams of paperwork. Putting together franchising documents can be confusing and time-consuming, but there are ways of minimizing these problems and making the process streamlined and efficient. All of these approaches to simplifying the documentation of franchising have one thing in common: they involve seeking the guidance of more experienced people.

Franchising experience can be shared with prospective franchisors in a number of ways. One of these ways is through franchise consultation agencies or individual franchise consultants. The consultants in these two contexts are well-versed in the intricacies of franchising because of their special training and their experience helping other clients with their franchising needs. Some of them actually learnt franchising the hard way: by trying to franchise their own businesses and learning what worked and what didn’t along the way.

Ultimately, figuring out which of these consultants is the best for your needs will come down to his or her track record and your budget. If you choose to go with a consultant, make sure to get recommendations beforehand. The amount of money paid to consultants for help putting together franchising documents can be so high that you must be sure you are getting your money’s worth from the get go.

 

Using Templates for Franchising Documents

 

Another source of guidance on franchising documents is the franchise package, including all the document templates and instructions you will need to put together the franchising documents on your own. These templates and instructions will have been put together by professionals who are intimate with the franchising process and have themselves helped other clients to franchise their businesses. Hence their guidance will be a great comfort to you. Of course the process will not be an interactive one: you will not be able to talk to the people who compiled the document templates and ask them questions that are unique to your circumstances. You will have to resolve any issues you encounter along the way by referencing various resources.

This can be a challenging way to put together franchising documents. However, if you are diligent, thorough and know what your best resources are, it is manageable. One advantage of doing things this way is that learning from experience empowers you to make more informed decisions about your franchise company. Another advantage is that it will save you lots of money if you succeed in doing it the right way. If you decide to follow this path, make sure to consult professionals for legal matters and matters relating to accounting. These are not areas where you should wing it, no matter how great you are at independent research.

Analyzing the “Franchising” Definition

One of the more appealing contemporary business models is that of franchising. The reason for the success of this business model is encapsulated in the “franchising” definition given in the online Business Dictionary: “Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications.”

The “franchising” definition above establishes an important point: Because the “trademark or trade-name” is already in use, and because the franchiser has already established certain “business systems and processes,” the franchisee can skip over the preliminary steps that are typically involved in starting a business. In doing so, the franchisee saves a lot of money and time. The franchisee has, at his or her fingertips, a formula that has already succeeded for others before. It is even possible to do research on other franchisees and see what worked for them and what did not. Franchisee networking is greatly beneficial to them.

Other advantages of franchising follow: any advertising done by the franchisor benefits the franchisee. There is also the fact that franchisees have exclusive rights within a specified territory. So there is no risk that they will have to compete with other franchisees for customers in that area. Another advantage of franchising has to do with financing. Individuals starting businesses often experience difficulty borrowing money from banks because there is no guarantee that they will succeed. Sometimes getting into the franchising business opens the doors for them: Some banks are willing to lend money to franchisees if the franchise in question is reputable.

 

The “Franchising” Definition and the Implied Limitations of the Business Model

 

The “franchising” definition highlighted at the beginning of this article emphasizes the benefits of franchising arrangements. However, there are certain limitations that come with franchising. These are also implied in the “franchising” definition. One such disadvantage is the fact that the franchisee is restricted to following the formula established by the franchisor. Any significant deviations from it would dilute the franchisor’s trademark. Hence individual creativity is somewhat restricted.

Another characteristic of franchising is the fact that the financial aspect of the franchiser-franchisee relationship endures for as long as the franchisee operates the business. Consequently, the franchisee has to share part of the profits with the franchisor. This is only fair. After all, the franchisee continues to benefit from the franchisor’s advertising, training and other franchise-related efforts. Hence, this is not necessarily a disadvantage. Put simply, it is a business expense like any other.

Franchising a Small Business

Franchising a small business is one way for an ambitious business person to trigger the growth of his or her business. It requires a smaller amount of upfront capital than would expansion under a sole proprietor. Thus, it is easier to achieve.

This is not to say that franchising is an easy process. Taken on its own terms, it is in fact a complicated process involving huge sums of money, much research, detailed planning and paper work, and attention to the details of franchise law. Anybody who is serious about franchising a small business will ultimately have to seek the assistance of a franchise lawyer and a franchise consultant if he or she is to make meaningful headway in franchising.

These two professionals help to streamline the process involved in franchising a small business. They ensure that the business owner meets all the requirements of the process and does not waste any time or resources carrying out unnecessary steps. The franchise lawyer and consultant make particularly valuable additions to a franchising team because, having previously guided others through franchising, they are sure to have reliable “road-maps” of the process in their minds.

 

Franchising a Small Business: The Roles of Franchisors and Franchisees

 

Some business people view their small businesses as family legacies that must be transmitted to the younger generations with all the traditions intact. They are likely to respond negatively to any suggestions that they innovate some aspects of their business practices to make their small businesses more conducive to franchising. They may consider unacceptable the expectation that they cede some control over the “final products” that have come to be associated with their respective trademarks.

This is hardly surprising. When people put as much of themselves into their businesses as small business owners typically do, it is hard to separate their business achievements from their personal lives and, sometimes, from their families. Some people are able to make a smooth transition from being small business owners to being franchisors.  Others are not. This latter group of people makes poor candidates for franchising. It would be better for them to pull back from their efforts to franchise. After all, franchising a business is not for everybody. Other business ideas are likely to work better for them.

Prospective franchisors are not the only ones whose suitability for franchising should be examined closely. Prospective franchisees should be subjected to similar scrutiny. After all, they also play an important role in determining the outcome of the franchising process. Their capacity to meet the requirements of the franchisee role could ultimately decide whether their franchise units succeed or fail.

Franchising a Business

Franchising a business is a long, drawn out process, and it can cost a good deal of money. A business owner who wants to succeed at franchising has to be able to think strategically. In the earliest stages of franchising a business, many decisions have to be made based on what is likely to happen in the future. If the business owner does a good job of anticipating what lies ahead, he or she will be amply prepared for future challenges and the franchise will have a high chance of succeeding.

In order to anticipate what lies ahead, business owners have to engage in research to help them determine whether there is regional or nationwide demand for the goods and services that they plan on offering through their proposed franchises. Those who fail to engage in this important step and then go on to franchise their businesses could end up failing to sell any franchise units. This would obviously be a disaster for them as they would already have invested good money and time into making the transition.

Business owners also need to anticipate the roles that they will play in the future, once they have succeeded in franchising their businesses. There is a significant distinction between playing a hands-on role in the operation of a family-owned business and being the CEO of a national franchise. The latter job involves a lot of outreach work. The franchisor has to market the business idea to prospective franchisees and to guide and teach the new franchisees. If business owners do not have the foresight to understand that their new roles will make different demands on them, then they may be in for a rude awakening when the transition finally happens.

 

The Logistics of Franchising a Business

 

Business owners who are wise enough to recognize that new roles as franchisors might not suit them should take their apprehension as a sign that franchising might not work for them. Franchising a business is not an everyday business decision. It has huge implications for the shape that a business will take and the role that those involved in it will play. Hence business owners should give any concerns or worries due consideration.

A very important step for business owners who are laying the groundwork for franchising a business to take is to look into the legal requirements for franchising. Any national and regional laws to do with registering and operating a franchise must be followed to the letter. Failure to do so could lead to harsh legal penalties and financial consequences for the franchise down the road.

Franchise Regulations

The regulations that govern franchising at the national and regional levels are referred to as franchise regulations. These regulations vary from nation to nation.

Some nations, such as the United States, have well-developed franchise regulations. In others like India, government regulation of franchising is still in its early days. In various nations, there is a self-regulatory aspect to franchising, with franchisors taking the initiative to formulate and follow specific standards. In these contexts, the franchisors are not necessarily subject to any penalties should they fail to comply with these standards.

If you are looking to become a franchisor, you should find out which regulations govern franchising in your location. Remember that, if there are franchise regulations, they are likely to exist at both the national and regional levels. Violating these regulations will earn you penalties, a terrible risk to take when your credibility is essential to successfully marketing your franchise to prospective franchisees. Hence you must make the effort to find out what the regulations pertaining to your business are and to comply with them. You could do this the hard way: this entails doing all the research and completing all the forms. You could also do it the easy way: by hiring a franchise lawyer.

 

Why Do Franchise Regulations Exist?

 

Franchise regulations primarily exist to protect franchisees. If franchisors were allowed free rein, it is likely that some individuals would take advantage of the opportunity to commit fraud. They might franchise a business that they were aware had no capacity to succeed, and sell unsuspecting men and women the franchise. It would probably be too late for these men and women to seek redress by the time they realized that they were on a sinking ship.

Having regulations in place minimizes the likelihood of such an outcome. With regulations to contend with, franchisors have to disclose all the relevant information pertaining to their businesses before they enlist a single franchisee. This is typically information about the franchisors’ and businesses’ financial histories. Such information would make it possible to determine the legitimacy of the franchisors and their businesses.

Examples of this kind of information include previous earnings and projected earnings, along with documentation supporting those details. Information about trademarks associated with the business should be made available, as should any aliases by which the franchisor has gone. The franchisor’s prior entanglements in fraud, if any, should be indicated.

Note that franchise law sometimes overlaps with other areas of law, including commercial law and intellectual property law. This can make things complicated for the franchisor. As a prospective franchisor, you should make a point of consulting a franchise lawyer to deal with all such legal matters.

How To Franchise: Meaning and Method

A successful business with a unique, easily replicable model is the perfect business to franchise, meaning that it can be expanded regionally or even nationally without overtaxing its owner. If you own such a business and have been toying with the idea of franchising it, you should read on. What you learn below will give you some insight into the process.

Franchising your business entails drawing up a license that allows other parties access to your business knowledge, model and trademarks. By granting these parties a franchise, you essentially allow them to provide customers with goods or services under the name of your business. This might worry you somewhat if you do not want to cede control over your business reputation to relative strangers.

Fortunately, though, franchising is not an endeavor that you go into completely blind. If you follow the right steps, you can maximize your chances of creating a successful franchise, meaning you will have much less to worry about than you imagine. As a franchisor, you would have the primary say over who you sold the franchise to and the circumstances under which your franchisees could operate the license. You would be able to vet potential franchisees to see that they met your expectations.

Heading 2: Turning Your Business into a Franchise: Meaning and Method

One of the keys to successful franchising involves starting to think like a franchisor, even before you set into motion the process that will make you one. You must be able to derive from your business experience a model that can be replicated by those who purchase the franchise, meaning you have to be able to explain to your franchisees exactly how your business works and why it works that way. You also have to set down detailed instructions for them to follow.

This is easier said than done. Most business owners are so immersed in their businesses that they cannot describe them in objective terms. They may have a hard time setting out in precise detail all the actions entailed in running their businesses. Many of them are likely to describe their most brilliant business decisions as intuitive decisions. You are likely to find yourself in this situation. If that is the case, you will likely need some time to orient yourself to this new way of thinking about your business.

It is an involving process turning your business into a franchise, meaning that at some point you will have to consult a professional for advice and guidance and to look for franchising resources. One such professional is a franchise consultant. Another one is a franchise lawyer. Both have training and experience specific to franchising and can save you much heartache. As for resources, you should turn to the International Franchise Association for useful information on the legalities of the process and for guidance.

Franchise Licensing

During franchise licensing, the relationship between a franchise owner and a franchisee is established. The franchise license created in this process can take two primary forms. The first one is the one by which the franchisor licenses the franchisee to use the franchise’s name and its trademark.

The second one is more extensive. It licenses the franchisee to use the business format of the franchise. This is a more involved relationship between the franchisee and the franchisor. The franchisor may give the franchisee some financial backing, supply the franchisee with the goods to sell and provide the franchisee with training. These are just some of the characteristics of the license to use the business format. There may be others, including the franchisor’s direct involvement in the process of selecting the locations for the franchise units.

Franchise licensing can take a variety of forms. This is as it should be: Franchisors vary in the kinds of arrangements they are willing to make with their franchisees because their respective businesses come with unique circumstances and needs. Thus, when they undertake franchise licensing, they have to make sure their license documents are worded carefully. The licenses are legally binding; hence, they must be categorical about what they permit.

Franchise licensing establishes responsibilities for franchisors and franchisees alike, including the conditions under which these responsibilities must be met and the details about payment for the rights granted under the license. It is also important for the license to address the steps that the franchisor and franchisee should follow if either or both of them fail to fulfill their responsibilities.

 

The Basics of the Franchise Licensing Process

 

In order to draw up a comprehensive franchise license, a franchisor should consider various factors. These factors have implications for the amount of money he or she will earn from the franchising arrangement, so it is important for them to be thought through carefully. They include clear indications about the limits of the license. For instance, it should be evident whether the franchisee maintains exclusive rights within a particular territory. It should also indicate whether the franchisee has to meet a minimal threshold for sales. The license should also be specific about whose responsibility it is to administer and maintain all intellectual property associated with the franchise.

Preparing the license is bound to cost money if it is done by a professional and if it is done well. Thus, the franchisor needs to decide whether to pay for the franchise licensing process or to somehow recoup the expenses from the franchisee. The license must also include a breakdown of financial obligations and penalties. The licensing fee should be indicated, as should the royalty rates. There should also be provisions for resolving any disputes.

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