Franchising is the business term which refers to the arrangement or agreement over two parties to consume the goods and services owned by one party for a specified fee or commission. Here the producer or the owner is termed as a franchisor whereas the consumer is termed a franchisee.
In the clear meaning, the term refers to the agreement where the franchisor party lends the franchisee to use its trademark or trade-name. Besides, it also grants a specific business system and processes to the receiving party in order to produce and market a certain type of goods and services.
This process definitely profits the small business that lacks to afford much finance and capital investment at the initial phase. It proves out to be a shortcut to success for those small firms who can use the brand name of a recognized company for product sell and market.
Advantages of Franchising
As this process suits the small business firms to achieve much potential in less time period, Franchising comes up with a handful of advantages. Some of them are discussed below:
Reduction in Cost
As the franchisor provides with its trade name to the franchisee, it makes them easy to operate the business which comes with less cost for inventory and supplies. Besides, the brand name of a renowned company assists in running the business smoothly and cheaply compared to running an independent company. For instance, if you can become a franchisee of Burger King, you can make a massive amount of sell without investing much penny on it.
Increased Success Rate
Buying a franchise means you get the hold of established and successful concept. Subsequently, this aids in the better success rate for any franchisee when compared with the independent business firms.
For instance, if you get the franchise of a famed brand, Nike, it becomes easy for you to sell the products successfully as it comes with the name of an established and successful brand. However, starting an independent firm with a raw concept could take ages to grasp a rightful amount of success.
Another advantage of franchising is the amount of business assistance you can get to run the designated business. As an entrepreneur, if you buy a franchise from the franchisor, you get hold of the supplies and equipment necessary to run the firm. In addition, it comes up with training and instruction on how to start the business with minimal risk and massive success.
The assistance can also refer to the staff training by the franchisor on how to improve decision-making capabilities in the business. Better the decision, greater the success rate.
The support and backup of a well-established company help the small organization to achieve considerable profit in less period of time. The amount of assistance and guidance the franchisee gets from the franchisor directly implies to the better business success rate.
Reduced Risk of Failure
The process of buying a franchise comes up with the detailed summarization of how well the franchisor is performing in the business market. Once you can get along with the success of your immediate franchisor, it will be less risky for you to conduct the franchising which reduces the risk of business failure.
All in all, the concept of franchising rightly suits for those small business firms who dream big of landing a significant place in the growing world of business. However, it is also important to cope up with the problems of misunderstanding, a degree of control, and expensiveness while carrying out this process.