Do Business Well

Franchising. Franchising is a marketing and distribution system under which a franchisor licenses franchisees to utilise his brand and business know-how as well as receiving initial and ongoing assistance in the successful operation of the business.

Franchisor. The franchisor can best be described as the grantor of a franchise. In the absence of hard and fast rules, it is generally assumed that a franchisor has an outstanding record of accomplishment in the operation of the business he wishes to franchise. This record should extend over a reasonable period, with the absolute minimum being one year.

Franchisee. This individual is keen to be in business for himself but not by himself. Prospective franchisees are expected to have a basic understanding of how business works and the ability to make a substantial investment. Above all, franchisees must display a willingness to operate the business under the franchisor’s name or trademark, and strictly in accordance with guidelines issued by the franchisor.

Franchise agreement. The franchise agreement is the legal document that governs the relationship between the franchisor and its franchisees. It is usually a standard agreement and runs for periods ranging from five to ten years. Moreover, a renewal clause in favour of the franchisee, but subject to the fulfilment of certain conditions, is customary.

Disclosure document. This document will be provided by the franchisor to the franchisee. It contains all relevant information regarding the franchise offer.

Operations manual. Frequently dubbed the bible of a franchise, the operations manual contains detailed instructions for the establishment and ongoing operation of the business.

Financial considerations. In addition to the upfront fee, which is akin to a joining fee and pays for the right to use the trademark and receive initial training and support, the franchisee must finance the establishment and operation of his business. On an ongoing basis, a management services fee will be payable and most networks levy an advertising contribution as well. In the spirit of the win/win relationship that is at the heart of franchising, ongoing fees should be calculated as a percentage of the franchisee’s turnover rather than charged out as a fixed monthly fee.

For a business concept to qualify as a franchise, the following elements must be present:

1. The franchise relationship is founded upon a contract which should contain all the terms agreed upon.
2. The franchisor must first develop a successful business format (the system) which is identified with a brand name, be it a trademark, service mark and / or trade name.

The franchisor must initiate and train the franchisee in the

operation of the system prior to the opening of the business so that the franchisee is equipped to run the business effectively and successfully. He must also assist in the opening.

After the business is opened the franchisor must maintain a continuing business relationship with the franchisee in the course of which it provides the franchisee with support in the operation of the business.

The franchisee is permitted, under the control of the franchisor, to

operate under the branding and the business systems developed and owned by the franchisor and to benefit from the goodwill associated therewith.

1. The franchisee must make a significant capital investment from his own resources.
2. The franchisee must own his business.

The franchisee will pay the franchisor, in one way or another, for the rights which he acquires and for the continuing services with which he will be provided.

Possibly related posts: (automatically generated)
Some Franchise Terminology

• Relationship Franchise Agreement - Operations Manual
• Selling the Franchise
• What does a Franchise Agreement cover?
• Business format franchise
• Modern-day Franchising Part 2
• The parties to the franchise agreement
• Modern-day Franchising Part 1
• Open-ended franchise agreement
• The franchise agreement
• Investing in a franchise: Take it slow

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