What is franchising?
Recent Regulations and Resources
Franchising is a form of licensing by which the owner (the franchiser) of a product, service or method obtains distribution through affiliated dealers (the franchisees). The holder of the right is often given exclusive access to a defined geographical area.
The product, method or service being marketed is identified by a brand name and the franchiser maintains control over the marketing methods employed.
In many cases, the operation resembles that of a large chain with trademarks, uniform symbols, equipment, storefronts and standardized services or products, and maintains uniform practices.
The International Franchise Association, the major trade association in the field, defines franchising as “a continuing relationship in which the franchiser provides a licensed privilege to do business, plus assistance in organizing, training, merchandising and management in return for a consideration (fee) from the franchise.”
However, the owner of a franchised business must give up some options and freedom of action in business decisions that would be open to the owner of a non-franchised business.
The franchisee is not entirely his/her own boss, because in order to maintain the distinctiveness and uniformity of the service, to ensure that the operations of each outlet will reflect favorably on the organization as a whole and to protect and build its good will, the franchiser usually exercises some degree of continuing control over the operations of franchisees and requires them to meet stipulated standards of quality.
In some cases, franchisees are required to conduct every step of their operation in strict conformity with a manual furnished by the franchiser. In return, the individual franchisee can share in the good will built up by all other outlets that bear the same name.
A company which depends upon the successful operation of franchise outlets needs individuals who are willing to learn the business and have the energy for the considerable amount of effort needed to be profitable.
The franchiser can supply the essentials for the successful operation of the outlet. Among the services franchisers may provide to the franchise operators are:
- Location analysis and counsel
- Recommending methods of operation
- Store development aid - including lease negotiation
- Store design and equipment purchasing
- Initial employee and management training and continuing management counseling
- Advertising and merchandising counseling and assistance
- Standardized procedures and operations
- Centralized purchasing with consequent savings
- Financial assistance in the establishment of the business