What is a Franchise?And Other Questions About Business No One Asks Out of Shame August 26, 2016
In the first issue of our blog we’ll answer some questions about, you guessed it, franchise. In particular, what is it and how does it work. You’ve probably heard of ‘cleaning franchise’ or maybe ‘a franchise business model’. But a survey we did showed that over 60% of people struggle to define what they really mean. How could this be?! In Australia only near half a million people are working directly in franchising according to resources! It’s time to make the business world even more accessible. Let’s answer some common questions!
What is a franchise?
A franchise is a legal license for the rights to sell a product or carry out a service with the name of a specific brand. It is granted by the company itself or by the government. So when you buy a franchise you buy the permission to represent a company as an agent, a sales person, or a service provider.
Franchising has been around for a while – since 1890’s, and it progressively became popular during the years. Now there are a ton of franchises for sale in various categories like fast food, retail, automotive, or in different services like cleaning, gardening, etc. Depending on your needs and preferences you have a lot of options, but choose with caution. Not every business can be successfully franchised, so you have to look for a company, which already has a stable foundation on the market.
When can you recognise a good franchise model? When the company has consistency in the quality of the services. If a customer likes a brand they will expect the same quality, no matter where they go. We managed to make Fantastic Services successful on three continents – Europe, Australia and North America and we can proudly say we are a franchisor. Which leads us to the next question…
What is a franchisor?
A franchisor is a company, which provides a licensed privilege to people to work under their brand name. Unlike employers, franchisors partner with people, they don’t hire them. The franchisor should provide assistance, training sessions, merchandise and other essential things to carry on the business.
The franchisor has interest to keep the brand strong, the brand name clean and the business – going. They have to make sure even if they have 100 shops or restaurants that all of them operate in the same way. They also have to ensure that the employees understand the concept behind the brand. Why? Because if the brand is consistent with the quality of the services, it becomes trustworthy, people will recommend it and use it again. We can safely say that the company succeeds if the franchisees do. So…
What is a franchisee?
A franchisee (or a franchise owner), is independent person, who buys the right to distribute services or goods. They pay an initial fee to the company they’ve chosen in return of training and support. The franchisees benefit from the proven ideas and experience of an already established business. Which makes this business model easily accessible and profitable. The franchisees can be:
Just one person. This is somebody, who wants to start making money fast and what better way than buy an already successful business? The person can do both the managing and the work, as is the case with many handymen and gardeners.
A small business. Let’s say you’ve been working in the cleaning industry for some time now and you want to make the next step. To buy a franchise is a great strategy and long-term investment in the security of a small business.
Also – you can start with one-man-army (a.k.a. just you) and progress to be the manager of 1-2 people, then with time grow the number of your teams.
Questions to ask when becoming a franchise owner
Buying a franchise can be easily profitable. The company, you’ve chosen to partner with has already figured out what works and what doesn’t. And they most probably had experience with other business owners. If you consider signing a contract there are a few questions you need to ask beforehand:
▢ Can I have a copy of the FDD (read more about it below)?
▢ What will be the costs?
▢ How much am I expected to earn?
▢ Will I and my employees receive training?
▢ What skills and equipment do I need to have?
After you have these questions answered you will have a better idea of what will be the benefits of signing a partnership with the chosen company. You can read our FAQ to get ideas for what questions we are being asked most frequently. What’s not to like?
How does a franchisor become one?
Becoming a franchisor in most cases is as challenging as you can imagine. Do a research on the company you chose and to sure they:
✓ Have a brand. It needs to be recognisable and catchy.
✓ Have stable finances. The company has to be profitable before considering starting a franchise.
✓ Have a marketing strategy. The company needs to know the market more than well and be prepared for changes.
✓ Provide training sessions. The business cannot operate properly if the partners or the employees don’t know the business concept.
Can they answer to all of these positively?
What is the franchise disclosure document (FDD)?
The franchise disclosure document (FDD), is a legal document, that sets the bonds of the partnership between the franchisor and the franchisee. According to the Franchising Code of Conduct the contract has to be written, oral or implied. It grants the permission to carry out service under the trademark of a given company in exchange of a fee. If all of that is covered – you have a franchise agreement.
When signing the contract both parties have certain requirements and make sure the two sides are completely met. You can hear people commonly referring to it as “commercial marriage”.
What is a franchise fee?
The franchisee fee is the tax the franchisee pays for the business. You can find the information about the required initial capital in the FDD. Be wary when you sign the agreement, because in there are cases, when after the initial costs are payed there will be ongoing fees. Some companies, like us, don’t have ongoing royalties. It is crucial for anyone, who wants to run a business, to calculate carefully the required initial capital and the additional taxes. Otherwise it can be fatal to any business.
So how did you like the first issue?
We hope you found the information useful. Do you want us to cover a specific topic? Do you have any comments or questions? Leave them below! In the following issues of #FranchiseFriday we’ll post interviews with people, who you can find on our About us page. See you next week!