Northwest Franchise Solutions, How Franchising Works
How Does Franchising Work?
In the world of business franchising is format where a company licenses its trademarks and proven business model to another in exchange for an investment fee, percentage of the sales or a fixed pre-determined fee. The company then shares is licensed trademarks and business plan with the franchisor that they both can make money. The individual who pays for the use of the trademarks is known as the franchisee. They are a franchise branch owner who owns and operates a separate sector of the franchisors business in a unique market. Normally, when a franchisee opens a new franchise branch they are assisted by the parent company for a pre-determined amount of time before become self-sustaining.
The relationship between a franchisor and franchisee is mediated by a contract that is known as the Franchise Agreement. This agreement states the terms and conditions that the franchisee must uphold. The business that is operating under a franchise agreement contract may also be referred to as an outlet or franchised location.
This franchise agreement will usually guarantee the franchisee training services, operation manuals, and a start up package of resource materials. In most cases there will also be some sort of mentorship or advisement established to help prepare the franchisee to operate their own business. Along with this, contract will also list the required payments and period of time of which the franchisee must pay the parent business for these services. At the end of the day the franchise agreement protects both parties while setting the franchisee up for future success as a child branch of the original business.
The History of Business Franchises
Franchising is not a new form of business. In fact it can be tracked all the way back to the Middle Ages in various incarnations. However, the Franchise system as we know it was actually invented by the Singer Sewing Machine Company here in the United States. Originally, the Singer Sewing Machine was a franchised machine maintenance and repair system for this popular sewing device. General Motors was also one of the very first businesses to become franchised a little bit later during the 20th century. Following these successful franchise ventures, franchising became increasingly more common; now we see it everywhere in all industries including restaurants, fashion retail, commercial cleaning and other.
One of the best-known franchises is Coca-Cola. This extremely well known beverage company used franchising to expand and distribute their products all over the world. The concept of franchising has garnered many fans here in the U.S with nearly every business entrepreneur aspiring to some day be as successful as Coke at growing and expanding their business concept through franchising.
It comes as no surprise why so many people wish to franchise their business ideas. Basically, when you franchise you create a relationship with a franchisee that assures your business will grow and continue to generate revenue. It also allows another individual to benefit and grow a successful business of their very own. Together both franchiser and franchisee must work together to drive the business forward.
Different Types of Franchises
1. Job Franchises
These are usually self-employed franchise opportunities that require small investments. Typically job franchises require the franchisee learning a specific art or craft.
2. Sales and Distribution Franchise
This is franchises deal in selling and distributing merchandise.
3. Management Franchise
In these franchises, the franchisee also becomes the manager of the branch in a different region or district.
4. Retail Franchise
The franchiser obtains permission to legally operate another branch of the franchise; they are responsible for obtaining a permit and hiring staff.
5. Food and Beverage aka. Restaurant Franchise
The franchise agreement may vary, but the franchisor assists the franchisee with training and hiring as well as throughout the initial launch to assure continuity in food and beverage service.
6. Investment Franchise
The franchisee invests in the company in order to obtain their own branch, for example: hotel franchise or outlets stores.