By Naz Daud
The Franchise Business is probably not something new for you. You've probably heard about food and clothing establishments being franchised. But for those who do not have a clue, a franchise is a permission that is provided by the manufacturer or the owner to retailers or distributors to sell the manufacturers' or owners' products and or services.
Take for example Restaurant X who specializes in fried chicken. Restaurant X has established its name all over one country. Now, it wants to expand by providing franchising opportunities to smaller companies or individuals looking for a business to start. So if Individual Y wants to have a restaurant that serves fried chicken, he or she may opt to just get a franchise of Restaurant X. If it approves, the Individual Y can open up a Restaurant X of his or her own, using the brand, under the terms provided by the franchisor. Restaurant X will provide training, support and guidance to help Individual Y start the business.
Now that you have an idea of what franchising means, let's begin to learn about the different types of franchise businesses. For those who are not familiar with the details of franchising, there are four types of such business:
1. The Product Franchise.
With this the manufacturer uses the franchise agreement to determine how the product is distributed by the person buying the franchise. A retail company can be provided with a franchise to distribute, for example, a range of tyres. The franchisee can utilize the brand name and the trademark owned by the manufacturer to distribute or sell the car tyres. The owner of the store will pay the manufacturer a franchising fee or agree to purchase a minimum inventory to sell on to their customers. The manufacturer gets the income from the purchase of the retailer, and/or the franchise fee, and the retailer gets the benefit of the brand and experience of the franchisor.
2. The Manufacturing Franchise.
The franchisee is permitted to manufacture the products under license and sell them using the originator's trademark and name. They also get the benefit of the national advertising of the product they manufacture. The company owning the product gets the franchise fee and sometimes a fee for every unit sold. Examples include the food and beverage industry.
3. The Business Franchise Venture.
The franchisee purchases and distributes the products for the franchise owner. A client base is provided by the product owner for the franchisee to maintain. Vending machines are a classic example of this, where the franchisee purchases the vending machines and distributes and services them, taking their share of the takings of the machines.
4. A Business Format Franchise
This opportunity is very popular, and involves providing the franchisee a proven business model using a recognized product and brand. Training is provided by the franchise owner and assistance in setting up the business. Supplies are purchased from the franchisor and the franchisee pays a royalty fee. Frequently the franchisor will sell the franchisee the products or raw materials to provide the same quality of product. Most well known fast food franchises are of this type, and also many jewelers and other ubiquitous High Street names.
Franchising is a very popular way that many use to grow their already successful businesses, and a few end up going global. You need to get the right product and the right business in the right area, but if you achieve that and build the right model, then you can create a very successful franchise opportunity.
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