Deciding on whether the franchise option is the right way for you is the age-old dilemma that faces anyone going into business. But before you even start looking at what type of franchise you would like to own and operate you need to understand the universally accepted forms of franchising, which are:
Business Format Franchising
This is defined as a distribution network operating under a shared trademark or trade name with franchisees paying the franchisor for the right to do business under their brand name for a specified period of time. In exchange, the franchisee is able to use the franchisor’s entire business system or format, including the name, goodwill, product and services, operating manuals and standards, marketing procedures, systems and support facilities. The franchisor, in turn, is obliged to give initial and ongoing services and support.
Product and Trade Name Franchising
Characterized as a sales relationship between a supplier and a dealer, product and trade name franchises can be found most commonly in car dealerships, petrol service stations and cold drink bottlers. The dealer is granted the right to sell its products in exchange for fees and royalties and has an obligation to sell only the franchisors’ products but other than that can conduct the business as he sees fit.
Within the business format franchise model, there are different ownership options. These include:
1. Single Unit Franchise
This is the option that most first time franchisees opt for as it entails investing in one unit and is the most common franchise format that makes up the bulk of a franchise company. Individual owner-operators take that first step into self-employment with one store and, if successful, can be offered additional opportunities down the line to invest in additional units.
2. Multi-Unit Franchise
There has been a growing trend among franchisors to encourage multi-unit franchise ownership. This can be a win-win situation for all involved as it allows the franchisee to expand and grow his business through multiple stores and for the franchisor these multi-unit franchisees have proven track records and can effectively help him grow his network.
3. Joint Ventures
Many franchisors opt for co-owning their branches in joint-ventures with qualifying franchisees. It is ideal for a franchisee that does not have sufficient funds to acquire a franchise but would like to start with a small stake in a joint venture with the possibility of acquiring the franchise outright over time.
4. Buying an existing Franchise
As existing franchise agreements come to an end, or when the franchisor wants to sell company-owned stores, established franchises come up for sale. In some respects, this option fast-tracks you to business success without the hassles of having to start from scratch. The business is already up and running, with a customer base, employees and a financial track record. You may, however, be paying a premium for those advantages.
5. Fractional Franchise
The ‘brand within a brand’ concept develops as franchisors look for alternate and more economical ways to grow their brand footprint. This cross branding allows for one or more brands to synergize, pool their administration and marketing activities and co-habitate under one roof. Examples of these can be seen in petrol forecourts or in stores that carry multiple ‘shop-within-shop’ concepts.
6. Area Developer
A franchisor will grant the right to a franchisee to develop the brand within a defined geographical area with clear parameters insofar as the number of branches that will be developed within the prescribed area.
7. Regional Master Franchise
A regional master franchise will be awarded to an individual or group to develop and roll out the franchise brand through a mix of company owned stores and sub-franchisees. As the area is often a province or region, the franchisee assumes many of the rights and obligations of the franchisor.
8. Master Franchise
A master franchise allows people or corporations to purchase the rights to sub-franchise within a certain territory or country. In most cases the master franchisee has extensive knowledge of the region or country and helps the franchisor test the market, recruit franchisees, roll out units and give the same support as the franchisor.
Article from FASA’s 2021 Franchise Manual – a 200 page guide to franchising including a list of all FASA members.
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