A franchise refers to a business model in which a franchisor grants a franchisee the right to operate its brand and products while remaining independent.
How Does a Franchise Work?
Franchising involves collaboration between a franchisor and a franchisee. The franchisee markets the franchisor’s products or services, and the franchisor supports the franchisee in its activities, allowing the franchisee to use the franchisor’s brand image.
Franchisees typically pay a percentage of their sales to the franchisor and sign a contract governing their business relationship.
What Are the Different Types of Franchises?
The different types of franchises include:
- Distribution franchises
- Service franchises
- Production or industrial franchises
What Are the Advantages of Franchises?
The advantages of owning a franchise include:
- Benefiting from a proven business concept
- Getting help from the franchisor in starting up the business
- Access to the franchisor’s contacts
- Benefiting from an established customer base
- Lower rates of bankruptcy
What Are the Disadvantages of Franchising?
The disadvantages of owning a franchise include:
- Less freedom in managing the business
- Signing a fixed-term contract with no promise of renewal
- Sometimes high royalty payments
How to Start a Franchise?
The steps involved in starting a franchise generally include:
- Choosing the type of franchise
- Conducting a market study
- Drawing up a budget
- Obtaining the necessary financing
- Signing the franchise agreement
- Opening the franchise
