Franchising Definition: Characteristics and Importances
Description: If you are interested in franchising, you must know its characteristics and importance before becoming a businessperson.
Image Source: https://unsplash.com/photos/B8Ij2-kpgfA
Franchise business definition must be understood before you start your entrepreneurship. This type of business is suitable for those of you who are hesitant to start a business from scratch. It also applies to those of you who are afraid to buy an existing business.
This article provides important information about franchising definition. It covers the characteristics and importance of a franchise. Here are the details:
The Definition of Franchising
Simple definition of franchising is a business agreement where an established company licenses another party to use its brand in conducting business. The established company that gives a license is called the franchisor, whereas another party that acquires the license is called franchisee. The license permits the franchisee to sell goods or services by using the same system and process as the parent company.
To acquire such a license, the franchisee must pay initial fees that cover startup and annual licensing costs. In return, the franchisor will provide assistance and training on a regular basis.
Although the franchisee pays for the license, there is one more obligation that must be obeyed. The franchisee must maintain the franchisor's reputation including brand name, quality of products and services, etc.
The Characteristics of Franchising
Another way to understand more about the meaning of franchise business is by looking at its characteristics. A franchisable business must have several features to be well replicated. They are:
1. License: the right to use the franchisor's brand name to sell their products or services. As a note, make sure that the franchisor you choose has a reputable name and good track records.
2. Policies: in the written agreement, it must be stated clearly what policies the franchisee must follow to maintain the business relationship.
3. Assistance: the franchisor provides marketing support, system, and technology to the franchisee. The assistance must be easily transferred and replicated. It is important to undertake the business accordingly to the franchising agreement.
4. Training: personnel training is provided so all workers can work in the manner stated in standard operating procedures. A good franchisor usually has a great management team that understands know-how the business works.
5. Royalty: this fee must be paid by the franchisee for using the franchisor's brand name in conducting business.
6. Period of franchising: the right to use the franchisor's brand name is limited. The period limitation is clearly stated in the agreement and can be extended.
The Importance of Franchising
Franchising business is currently popular among people who dive into entrepreneurship. Generally, the importance of franchising is taking part in the advancement of modern business.
It not only has an impact on the franchisor but also on the franchisee. For the franchisor, it helps to develop their chain stores, provide feedback regarding products and services, and promote the brand name.
Whereas for the franchisee, it helps to run a business without experience since the franchisor provides assistance and training. It also offers a higher rate of success compared to other types of business. Last but not least, it helps the franchisee to save more money than building the same business type from scratch.
Before buying a franchise, you must clearly understand the Franchise business definition. You need to conduct research on what industry you want to do. Make sure you purchase the right franchise so your investment generates profitable results.