A franchise is defined as ‘an arrangement through which a sole distributor or a manufacturer of a trademarked product or service gives exclusive rights of its local distribution to independent retailers in return for royalties and conformance to standardised operating procedures.’ It is a contractual relationship between the franchisor and the franchisee.
The franchise is being used in different industrial sectors and businesses as well. It has become an important feature. It allows a franchisor to expand in areas where they have had difficulties expanding. All that is required is for the franchisor to pledge support to its franchisees without making more investments.
Types of Franchise
There has been an exponential expansion in businesses nowadays. This has increased franchising opportunities, with more and more people adopting this concept. There are four different types of franchising opportunities. They are discussed as follows-
1. Product Franchise Business Opportunity
In this type of franchise, the franchisor grants the authority to the franchisee to use the name and trademark owned by them and distribute their products. In return for these rights, the franchisee is supposed to pay a sum to the franchisor or purchase a minimum stock inventory. The manufacturers govern how a retailer distributes its product.
The most significant advantage of the product franchise is that the franchisees get the licence to use the franchisor’s trademark for business. One can get to run their own business under the name of the franchisor’s brand.
2. Manufacturing Franchise Opportunity
This type of franchise is very dominant in the food and beverage industry. Through this, a franchisor gets to expand its business and produce consumers and industrial goods. The franchisor provides the licence to run production under their name to the franchisee.
The rights are not just limited to production. The franchisee also gets to distribute the manufactured products. It is one of the most common types of franchise.
3. Business Franchise Opportunity Ventures
Independent businesses often adopt this type of franchise. This franchise concept allows a business owner to purchase and distribute products of one company specifically. The companies offering such franchises are supposed to provide these businesses with accounts or clients. In return, the company gets compensation which is pre-decided between them. Obtaining vending machine routes distribution rights is an excellent example in this case.
4. Business Format Franchise Opportunity
A business format franchise is perhaps the most popular type of franchise. Many people call it the typical franchise. The franchisor, in this format, provides the franchisee with trade names, the right to the trademark, the system, and business processes.
In a business format franchise, the franchisor governs how the franchisee runs the business and provides service. The franchisee has to live up to the expectations and the guidelines set by the franchisor.
The franchisors also provide advice and training to the franchisee. They work very closely to make the business a success. Some of the biggest brands use the business format franchise. Royalties are paid to the franchisor, and the franchisee is also required to purchase the supplies from these companies.
Franchise Agreement
A franchise agreement is a legal agreement that binds the franchisor and the franchisee together. It is a contract. This franchise agreement contract details what the franchisor expects from the franchisee to run the business and its operations. The franchisor also gives consent to the franchisee to use the company’s name and its system in this franchise agreement.
There are some significant components of a franchise agreement mentioned as follows-
Contract Explanation
This part of the franchise agreement explains the kind of relationship the franchisor and the franchisee are entering into.
Operation Manual
In this section of the franchise agreement, guidelines that the franchisee must legally follow are mentioned in detail. Amendment of these guidelines can be done if the franchisee is comfortable with these changes. The content of this agreement is confidential.
Proprietary Statements
These statements explain how the name of the franchise is supposed to be used. Guidelines for advertising and marketing processes are also mentioned in this segment of the franchise agreement.
Ongoing Site Maintenance
This part of the franchise agreement mentions the timeframe for maintenance and upgrade of the franchisee’s location.
There are several types of franchise agreements, namely-
Single Unit Franchise
The franchisee gets to establish and run only one franchise.
Multi-unit Franchise
The franchisee gets to establish and run multiple franchises.
Area Development Franchise
Apart from running multiple establishments, the franchisee also gets to open a specific number of locations in the limitations of a particular area.
Master Franchise
The franchisor grants the rights of running establishments in a country to the franchisee.
Conclusion
The franchise is a ready-made and tried and tested formula for people looking to start their business. People who are not willing to take the risk of starting up their own business can opt for this concept. The failure rate of taking up a franchise is less. The different franchise types make it easy for an individual to decide and choose the suitable model for them.
