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What is a Franchise?

by Robert Warren

Franchising has gained more scrutiny during the past few years in Australia due to the benefits it offers minus a big hassle to the people involved. A marketing concept of innovatively distributing products and services – this is what franchising is all about.

As opposed to what many think, franchising is not a business, but a way of doing business. It is a method of business through a licensing relationship between two parties: the franchisor and the franchisee.

The franchisor is the owner of the business providing the goods or service that grants the other party the license to conduct the business under their marks. The franchisee, on the other hand, is the party granted the right to market the products or services provided by the franchisor.

There are two major types of a franchise. The first type is a form less associated with franchising – traditional distribution. The focus is only on the products and services provided by the franchisor to the franchisee, as can be seen in wholesaler-retailer and retailer-retailer relationships.

The most common type is the business format franchising where franchisors grant the franchisees not only with products or services but also an entire operating system, brand and support, all of which are important in marking consistency and uniformity among a franchisor and all its franchises. This can be seen in many industries such as fast food, beverages, automotive and health.

Franchising is almost always a win-win situation wherein the franchisor can expand its business and scope without disintegrating its own capital, while the franchisee gets a secure and established set of products and services, together with a brand name, at a lower risk for their own commercial advantage.

Other Reasons Why You Should Start Franchising Your Business

  • Consumer demand

Consumers want what is available and accessible, faster and cheaper. The thing, however, is that they also want services from companies they can trust and have a set of core values they believe in. Franchising is an effective way of localising commercial ideas to get them more involved in communities.

  • Quality at scale

According to studies, centrally managing a single business can degrade the quality of operations and services they provide through time and expansion. By franchising and finding the right partners, companies can scale out while preserving its core values without compromising on service.

Other Reasons Why You Should Buy a Franchise

  • Easier than starting your own

If the brand is already well-established, promotion on the start-up would not be a problem. Your franchise could also benefit from the advertisements of other franchises.

The franchisor also generally assists in multiple aspects such as choosing of location, strategic plans, and people management. Above all, buying a franchise is generally cheaper and less risky than establishing your own brand.

  • Incentives and ongoing support

Monetary rewards are directly related to the efforts of the franchisee. The franchisor also provides ongoing support, training, and knowledge which may cover various fields related to the business such as marketing, merchandising, accounting and people management.

In Australia, franchises are regulated by the Franchising Code of Conduct which is regulated by the Australian Competition and Consumer Commission. This provides more security and legal protection to both sides of the franchising relationship – yet another one of the many advantages of franchising.

Since this is a “commercial marriage” between two parties, the relationship is ultimately legal, with the provisions, obligations, and responsibilities of both sides all thoroughly detailed out in the franchise agreement.

While this is a highly technical aspect of franchising, there are a lot of ways to get franchisor and franchisee legal advice. Contact your local legal professional for more information on franchising and your business.

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