In essence, franchising is simply a matter of rights and know-how in exchange for money.
Business Format Franchising
Our firm specializes in business format franchising. In business format franchising, the franchisor licenses the franchisee to sell certain products and services and to use the franchisor’s trademark and trade name. Business format franchising offers the franchisee business ownership while operating under the franchisor’s organization. The franchisor teaches the franchisee the entire business operation including marketing, management, selling, inventory, accounting, and personnel procedures. The franchisor also provides the franchisee with ongoing support and training. Business format franchising is the fastest-growing form of franchising. Restaurants, retail businesses, and many service businesses are business format franchises. Today, most franchising involves business format franchising.
The success of franchising is based on the unique relationship between the franchisor and the franchisee. Each needs the other to succeed. The franchisor must be interactive with all franchisees with continual monitoring, updating, adjusting, and communicating to enable the individual franchisee to succeed. The individual franchisee’s success contributes to the wealth of the Franchisor Company. Individuals are willing to be franchisees because the Franchisor, in exchange for an established fee and continuing royalties, offers benefits that are not available through other business routes.
Definitions
Franchising is a method of marketing a product and/or service that involves two basic levels of entities. The franchisor and franchisee in a franchise system. As simply as possible, a franchise operation is a business that in essence belongs to an organization of like businesses that share name, trademarks, image, methodology, products, services, reputation, and secrets of operation.
The following are the basic definitions in the franchise industry.
Franchise Definition
The definition of the word “franchise”: is a right or privilege; It is a license granted by a company (the franchisor) to an individual or firm (the franchisee) to operate a business where the franchisee agrees to use the franchisor’s name; products; services; promotions; selling, distribution and display methods: and receive other company support. It’s a right to market a company’s goods and services in a specific territory. This right is granted by the company to an individual, group of individuals, marketing group, or entity.
Franchisee Definition
A franchisee is an entity that pays a royalty and often an initial franchise fee for the right to do business in a specified area under the franchisor’s name and business system. The franchisee may be an individual, group of individuals, or other entity.
Franchise Agreement Definition
A franchise agreement is a legal document that specifies all legal obligations of a franchisor (seller) and a franchisee (buyer). The Federal Trade Commission and many states have fair-practice laws to prohibit franchisors from using deceptive business practices.
Franchisor Definition
A franchisor is a company that develops a product or service concept and sells others rights to make and sell the products or services. The franchisor lends a trade name, trademark, and business system to a franchisee. A franchisor is a company that grants franchises.
The rights and responsibilities of the franchisor and franchisee are spelled out in a franchise agreement. While the franchisee owns and manages the business, he/she agrees to use the franchisor’s name, products, services, promotions, and selling/distribution/display methods, and to maintain the standards of the franchise business system. The franchisor company agrees to provide support as well as allow franchisees the use of its name and business system.