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What is franchising?

 

Franchising is the use of another company’s business philosophy. It involves the franchisor (owner of the business philosophy) granting the franchisee (independent operator) the right to use the franchisor’s business techniques, trademarks and/or distribute its products. The franchisor also provides the franchisee with various services such as advertising, training, customer care and other support services.

 

n return the franchisee pays a percentage of its sales, monthly or another cycle decided upon in the contract, to the franchisor, in addition to paying a onetime fee called a royalty fee.

 

A franchise contract is often signed for long periods of time, which can sometimes turn out to be problematic for franchisees, as premature termination of the contract often incurs serious financial penalties for the franchisee.

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Franchising Companies:

 

Patent Owners and Lessors

Restaurants

Patent Owners and Lessors

Patent Owners and Lessors

Restaurants

Patent Owners and Lessors

Restaurants

Building Cleaning and Maintenance Services

Miscellaneous Retail Stores

Restaurants

The earliest records of franchising go back as far as 1850s. Some of the earliest examples include Western Union’s franchising out its telegraph system to various operators. One of the more prominent and successful earlier examples is John. S. Pemberton’s franchising of Coca-Cola.

Franchising really took off and took on its current form during the early 1930s with the franchising of quick service restaurants, or more commonly known as fast food restaurants. These franchise-based fast food restaurants allowed operators to use the same brand name, food, logo, design and theme.

Franchising became so popular that by 1950s there was an explosion of various franchising chains, with the popular ones being fast food restaurants, diners and motels.

The most famous and successful franchising model is that of McDonald’s, boasting more restaurant locations worldwide than any other franchise network.

The advantages of an established business to open up a franchise network are numerous, with some of the important ones being:

-         Expansion – franchising is unrivaled at rapid expansion of business without sacrificing some of the control over it. Franchisors can use the capital and resources of their franchisees to expand on a global scale without having to approach various investors and give up some of the control of their company in return for capital.

-         Legal aspects – a franchisor oftentimes does not need to worry about the legal paperwork that goes with opening up a new location – this is all done and provided for by the franchisee that is looking to join the franchise network.

-         Due to franchisees having a direct stake in the franchise network, they have a greater incentive than traditional employees to maximize their business’ success. This reduces the franchisor’s responsibility in having to carefully monitor all their locations.

The benefits an independent operator receives when joining a franchise network are as follows:

-         Quick set-up – franchisees can begin doing business fairly quickly as many of the initial costs involved with starting a new business have already been taken care of by the franchisor. These include a developed trademark and a proven method of operation.

-         The franchisee receives extensive support from the franchisor in the form of: aid in selection of the location, training, expertise and troubleshooting as well as other forms of support. This greatly increases the chances of the franchisee’s business becoming a profitable one. It is in both franchisor’s and franchisee’s best interest that the franchise network is successful.

These factors have contributed to franchising becoming a renowned business model all over the world, with franchising being used in more than 70 industries and generating annual sales of over $1 trillion in the United States alone.

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Subjects keywords: Franchising, How franchising works, franchise, franchising companies, franchisors, franchising chains. All information about franchising.