Franchising is the most successful business system in the world. Yet the vast majority of people, including many who are involved in this segment of free enterprise, don’t have a true understanding of what franchising really is. Whenever you hear the word “franchise” you think of fast food restaurants like “Jollibee” or “McDonald’s”, but there is more to franchising than the two giants. Franchising is simply a special type of licensing arrangement for the distribution of services and products.
Franchisors allow another entity – the Franchisee – to use their business system, trademarks and corporate identity for a certain period of time. It is based on an interdependent relationship between the two parties. Both must work as a team and accept responsibility and accountability for the success of the system and business. In other words, it’s like a marriage – it should last forever or at least 5-10 years.
The job of the Franchisor is not to make a Franchisee successful, as the Franchisee must take an active role in marketing the brand and working the operating system. Being part of the system does not guarantee for personal success. The Franchisee has to work hard as well, enduring long hours and sacrifice sometimes. Franchisors must provide the best operating system possible and assist Franchisees in getting efficient, effective and profitable by providing support services throughout the relationship.
Business format franchises offer the Franchisee not only a logo and trademark, but also a complete system of doing business. The word “system” is the key concept to franchising. A Franchisee receives assistance with site selection of the business, personnel training, business set-up, advertising and product supply. For that, the Franchisee pays at the start of his franchise an up-front payment called the “franchise fee”, and on-going “royalty” which enables the Franchisor to provide more research and development, training, and support for the entire business. In a few words, the Franchisee purchases someone else’s expertise, experience and method of doing business and does not have to go through the “labor pain” of a new start-up company.