A franchise is a contractual arrangement by which the product manufacturer gives distribution rights to retailers in return for royalties. Franchising is a method to expand the business scope of a company. This is a way to develop customer outreach by distributing their products and services to a larger audience. In today’s competitive world, franchise opportunities are increasing every day. But before investing thousands of dollars in one, knowing the business franchise in detail is important.

Who owns the business?
A company with multiple locations is not always a business franchise if the same person owns all branches. When the proprietor of a firm offers a license to several parties to run a business using the same brand names, and other identifiable characteristics of the business, this is known as franchising. The party giving the authorization is known as the “franchisor,” while the one who purchases the permit is known as the “franchisee.” Every franchise requires a license, but not every license is franchised.

Types

Product or distribution franchise
In this type, the franchisee buys the license to sell the franchisor’s products using their brand name. The dealer runs the business from his store and pays a royalty to the parent company.

Business format franchise
This is the typical and most popular type of franchise business. The franchisee acquires a license from the franchisor to run a business as a distribution network of the parent company. The owner of the brand supports the licensee with marketing and initial setup.

Management franchise
This franchise model focuses on service-based activities rather than product distribution. The franchisor’s business includes home care services, tax and financial consultancies, human resource management, repair and maintenance, hospitality, etc. A franchisee gets the license to carry out these businesses.

Manufacturing franchise
Here, the franchisor runs the manufacturing business of consumer and industrial goods. The franchisees get a license to start a production unit under the trade name of the parent company. The licensee can also market the manufactured goods.

Benefits of running a business franchise
Running a business franchise might be a suitable enterprise for someone with no direct expertise in business administration because:

• Starting a franchise can be less expensive than starting a firm from scratch. The money gathered from franchisees can be utilized for expanding the business.
• Rapid expansion is required to grab market share in a growing country. The franchising business model can help a firm progress.
• The company has instant brand awareness, a ready-made supply structure, and a sophisticated marketing strategy.
• Franchisees follow their franchisors’ company procedures rather than developing their own. Compared to privately operated firms, franchisee businesses have a higher level of recognition because more sites are opened.
• Since the costs of brand creation are divided among numerous firms in a franchising corporation, substantial savings on sales and advertising expenses can be realized.
• Franchise businesses often outperform independent enterprises due to a multitude of variables. For example, they have well-experienced specialists backing them up, reduced branding costs, greater brand recognition, and so on, increasing their chances of success.

How does the franchisor profit?
A business franchise contract usually includes three types of payments to the franchisor:

1. The franchisee should pay the franchisor a deposit to obtain the controlled rights or trademarks.
2. The franchisor is frequently compensated for offering instruction, supplies, or business consulting services.
3. The franchisor earns ongoing royalties or a share of the sales generated by the operation.

Step-by-step instructions for purchasing a franchise

Be sure about your reasoning
Before investing in a franchise, consider your reasons for acquiring one. For example, if you believe that operating one will be simpler than running any other business, remember that company ownership overall is complex.

Investigate franchises you might be interested in
When selecting a franchise, conduct extensive research regarding the parent company’s relationship with franchisees and the market area in which your joint venture will compete.

Start the application procedure
Once you’ve chosen a franchise, you may start the application procedure. You’ll undergo screening as part of it.

Apply for a loan
Many franchisees will require financing to start their business; in that case, they can take a bank loan.

Receive training and assistance
Training is required to establish oneself in the industry.

Franchise risks
The drawbacks of acquiring a franchise include

• High start-up expenses
• Ongoing royalty fees
• A franchisee may be misled by false data and pay exorbitant fees for little or no franchise value.
• Franchisees lack area control and commercial inventiveness.
• Funding may be challenging,
• Franchisees may suffer due to bad location or administration.

Conclusion
The business franchise model is evolving in new directions. Newer franchising models are gaining traction, especially in service industries like home health care. For example, a franchised firm best suits someone who wishes to invest in an established business concept rather than building one from scratch.