By David Gray and Lauren Kenley

Franchising has a number of advantages over other forms of business, not the least of which is how it allows wider expansion of an enterprise while using far fewer resources than would be the case otherwise. It supports expansion into smaller communities, for example, by combining broadly recognized branding with the knowledge of local businesspeople, who already have close connections to their communities.

As the franchisor’s trademarks gain broader recognition, this success usually translates into both higher franchise fees and a greater ability to generate additional franchise sales.

For the franchisee, meanwhile, the opportunity to buy into an existing, well-established concept significantly reduces the risk of business failure. Statistics show small businesses opened by independent entrepreneurs stand a 70 to 80 per cent chance of not surviving the first few years. This is in direct contrast to the franchise sector, where statistics instead point to an 80 per cent chance of success.

The franchise model provides benefits by permitting an entrepreneur to work with a proven, successful business model and to gain increased marketing leverage through brand recognition. Customers’ familiarity with a well-recognized trademark usually allows franchisees to start their enterprises quickly, without the growing pains associated with a start-up.

Franchisees receive ongoing assistance and support from their franchisors, who can hire specialists in areas like research and development (R&D), cost control, sales and marketing. And lower prices for inventory and supplies are realized in many cases, due to aggregated system purchasing power.

Also, franchisees are often well-positioned to pool their resources together with the franchisor for advertising and promotional purposes, effectively using individual contributions to reach a greater number of potential customers for each particular location.

Franchisees also have access to credit that they may not find otherwise. Chartered banks and similar lending institutions are usually more willing to lend money to an entrepreneur who has the backing of a successful franchisor than they are to the completely independent businessperson.

The franchise concept has long become a vehicle for many ambitious individuals to venture into the business world as entrepreneurs, but with the expertise and groundwork for their enterprise already developed for them. Most franchise operations come with fully developed products, services, marketing, training and brand value.

The concept of franchising has stood the test of time. With committed ownership, it will remain a valuable contributor to the economic fabric of modern commerce.

Read the full article: Defining Franchising

By David Gray and Lauren Kenley

There are many opportunities in franchising to own single or multiple locations, either existing or new. A franchisee may even become an area developer, with an arrangement that grants geographical exclusivity. Each franchise ownership opportunity has unique challenges and responsibilities.

Single-unit franchising is usually the starting point for new entrepreneurs who are looking at a given franchise as their initial foray into the business world. As such, single-unit franchising is the most common form of participation in the business model.

In this scenario, of course, the franchisee is only responsible for running one unit, which could be an independent location or a home-based or mobile business. The franchisee is usually on-site and is fully involved with all of the daily operations of the business.

With multi-unit franchising, the franchisee may acquire locations in different territories—chosen through mutual agreement between franchisor and franchisee—and usually at a reduced price per unit. In this scenario, the franchisee oversees the business in a general sense, but hires managers to run the day-to-day operations of each individual enterprise. Also, sound business practices usually dictate operating each unit as a separate corporate entity.

With area development, the franchisor grants an exclusive territory to the franchisee for the establishment of multiple units. This geographical area may be as narrow as an urban centre or as broad as an entire country. The franchisee agrees to a development schedule for opening and operating a number of units and then will hire managers for each franchise. With this level of commitment, there is typically a significant reduction in franchise fees and a reduced royalty arrangement. Area franchisees can open as many corporate locations in an area as they wish, but do not have the rights to sub-franchise the business to others.

Another option is master franchising. Sometimes referred to as a regional or master developer, a master franchisee acquires exclusive rights in his/her area, acting as a business development partner to the franchisor in that territory or region. In addition to opening franchises and sub-franchising (i.e. selling single- and multi-unit franchises to other owners), the master franchisee keeps a significant portion of the franchise fee and receives ongoing royalties from the franchisees within the area. Essentially, he/she becomes a franchisor for that region, but without having to incur the costs of product or service development, process refinement and brand awareness.

Read the full article: Defining Franchising