Franchising is not just about coming up with the money to cover initial payment and starting operations immediately. You don’t get to keep all earnings, either. Surprised? Well, you are paying for the license to operate under someone else’s brand; it’s sure to go with a couple of rules.
Before you consider franchising, be informed of the following:
Two Kinds of Franchising Relationships
Business format franchising and traditional franchising are your options when it comes to franchising relationships. The first one involves the franchisor offering everything–from the brand name to the products, operating manual, and training guide. It’s a great franchising option for those who are trying it out for the first time.
Traditional franchising is also known as product distribution franchising because you only focus on the product supplied by the franchisor. You get a little more freedom when it comes to business operations. Depending on the type of franchising you end up with, there may be slight differences when it comes to royalty payments. To get accurate computations, make sure you have someone knowledgeable in royalty payments accounting.
It’s not unusual for franchising to reach foreign shores. Usually, it’s one of the goals of franchisors. Through franchising, they get to expand their business using the money invested by franchisees into their business. There are several ways to do it. The franchisor could communicate with individual franchisees overseas, or they could set up a foreign branch or subsidiary to act as the franchisor that communicates with local franchisees. They could also enter into a joint venture with a third party that is knowledgeable about the foreign country’s market. Other options include entering into a master franchise agreement or an area development agreement.
Statistics show that franchising pays well and has a higher survival rate than new businesses. It makes sense that you’ll want to venture into this kind of business model, but before you do, know everything you can about the process.