Franchise

We deal with franchising on a daily basis: it is how the majority of popular businesses in many areas operate. The franchise is popular because it allows you to start a business quickly and with a successful business model already in place – there is no need to develop a new business idea while risking start-up capital. Franchising is used by entrepreneurs who want to expand their domestic market or enter international markets, and it also aids in the distribution of a product or service. We attempted to reveal the main aspects of concluding a franchise agreement and managing a franchise in this article.

What exactly is a franchise?

A franchisor is a natural or legal person who owns all of a company's rights and trademarks and licenses a third party to conduct business under his trademark. By doing so, it authorizes the franchisee to exercise all business rights and trademarks. Because the franchisor owns the trademark, he determines the requirements for licensing the franchisee to sell goods or services under the existing trademark.

 

The franchisee is the owner and manager of the outlet, but the franchisor retains control over the method of selling goods/services and the application of the business model. The franchisee does not have the freedom to conduct business as he sees fit; instead, he must follow the rules and restrictions established by the franchisor. There are no established rules for establishing restrictions and requirements for obtaining a franchise; they are prescribed individually in each case.

Advantages of Purchasing a Business Franchise

For a variety of reasons, franchising licenses are a popular business model:

• The speed with which the project can be launched – there is no need to spend months inventing and testing new ways and methods of doing business; instead, simply follow the templates and apply work methods that have already been tested multiple times.
• The ability to use a well-known brand while also benefiting from the franchisor's advertising and marketing.
• The franchisor will provide training assistance.
• The franchise's success rate is higher than that of typical startup projects.
• Because all costs are included in the franchise, it is a profitable way to expand your business.
• Obtaining the exclusive right to sell the franchisor's products in a specific territory.
• Obtaining access to successful TMs' business tools and trade secrets.
• Investment risk is low.
• The franchisor will provide complete assistance with financing, site selection, decor, employee training, and day-to-day operations.

Selling a Franchise: A Franchisor's Responsibilities

Those considering starting a franchise should research some of the duties that the franchisor must carry out in relation to the franchisee:

• the development of a business model, brand, strategy, and processes;
• preparation of the logo, graphics, and content, trademark registration;
• Initial and ongoing franchisee and employee training;
• assistance in the field of public relations;
• collaboration in the launch of joint advertisements and the enhancement of advertising opportunities;
• analysis and development of new goods and services to be sold through franchisees
• establishing contacts with supply chain partners.

Purchasing a Franchise: A Franchisee's Responsibilities

In turn, the franchisee is in charge of daily business processes such as:

• еmployee training; 
• quality control; 
• sales management; 
• financial control and account management; 
• marketing and advertising activity control.

How do I purchase a franchise business?

A franchise agreement is considered for the parties to have the entitlement to use the franchisor's brand name. The buying party pays a commission to the franchise owner in exchange for allowing to use the franchise. The person who acquires the franchise receives the rights of a branch of the mother company, which allows him to advertise the franchisor's goods and services. A franchise could indeed typically last for 5 years or more. A contract term extension can be granted with the consent of both parties.

A typical franchise agreement includes two parties:

• the franchisor who represents the franchisee's right;
• the franchisee who receives this immediately following the initial payment.

Types of contracts used in the conclusion of a franchise agreement

 

The three major types of franchising are as follows:

 

The franchise is divided into three categories based on the level of involvement:

1. The much more basic and well-known form of franchise agreement is solitary franchise ownership, wherein the franchise grants the franchisee access to and begins functioning one franchise business.
2. Multi-Unit Franchise (or Multi-Unit Franchise Ownership) – A multi-unit franchise allows the franchisee to open and manage more than one unit. Franchisees hire business managers in divisions to deal with the major aspects of running a business rather than day-to-day operational issues (provided that one franchisee has several divisions).
3. A sub-franchise is a multi-unit franchise that serves to establish a strong customer base in a specific region. This can be accomplished by establishing franchises in various locations within the same geographic region. This franchise method allows the franchisor to cover a large portion of a single country.
4. Purchase of a master franchise – popular among franchisors looking to expand internationally or master a remote area. That's the type wherein the master franchisee assumes the franchisor's responsibility for creating a large geographic area by selling the franchise and supplying help and coaching. The franchisor ends up paying a fraction of the first licensing fees, royalty payments, and other service charges to the master franchisee in exchange for this. The owner of the «franchise master» acts as an intermediary between both the franchisor and several franchisees in this type of collaboration.

What to Think About When Purchasing a Business Franchise

Purchasing a franchise is a two-way street in which the buyer selects the seller and the franchisor selects the franchisee. To do so, you must first pass an interview and selection process. The first and most important step before signing a franchise agreement is to conduct a thorough investigation, which should be conducted by specialized specialists such as lawyers, accountants, and other experts who will be able to assess all of the benefits and risks of such a transaction.

Conclusion

Because the process of regulating a franchise differs by country, it is worthwhile to seek advice from qualified specialists. The experts at IncFine can provide franchise advice and walk you through the entire franchise process in Europe, Asia, the United States, and other regions.

To receive a consultation, please fill out a quick contact form on our website or use the information in the «Contacts» section. Order support for a franchise purchase transaction and receive qualified assistance from lawyers who will assist you in completing all necessary processes quickly and with minimal risk.