Getting Started - What is a Franchise
Most of you are probably already familiar with franchises. You may even patronize a variety of franchised businesses without realising that they are franchises. These businesses range from car servicing and financial services to yogurt and home repairs. According to the International Franchise Association(IFA) franchises employed nearly 9,000,000 Americans in 2015 and generated nearly $880 billion. Franchising is difficult to escape.
The technical definition falls fairly in line with what we all typically think a franchise is - “an authorization granted by a company to an individual or group enabling them to carry out specified commercial activities”. Basically they are businesses operated by an individual or a group (the franchisee(s)) that shares a common product and/or trade name to the parent company (the franchisor).
But, what you might not know is that there are actually two major types of franchises: product/ trade name franchises and business format franchises. In product and trade name franchises the franchisee (operator of the individual business) has use of a product or trade name, but no supporting relationship with the franchisor (larger company). This means that the franchisee basically operates the business independently, but does benefit from the marketing and advertising efforts of the franchise system. You’ll typically see these types of franchises for products that are older and established with a proven customer base. Some of the most common if these businesses are auto dealerships, gas stations, and soft drink bottling companies. On the other hand business format franchises is a setup that is characterized by an on- going business relationship between franchisor and franchisee. The franchisee is not only offered a trademark and a logo, but also a complete system of doing business. This is the more well known and much faster growing form of franchising, with world famous companies like McDonald’s, Holiday Inn, Century 21, and Baskin-Robbins using this format. This is also the form of franchises that we’ll primarily talk about on FranchiseHelp.
In the best of all worlds, the business format franchise is mutually beneficial for franchisor and franchisee alike. The franchisee typically pays an initial fee and ongoing royalties, giving the franchise system a continuous supply of working capital to develop and expand the organization. In turn, the franchisee gets a business package which would take years to develop and refine, a strengthened ability, to compete through the established brand identity and marketing power of the system, and the cost benefits and clout associated with the franchisor’s collective purchasing power.
4 Signs a Franchisor May Not Be Around for the Long Haul
A critical part of the due diligence process for prospective franchisees is trying to discern (to the extent reasonably possible) whether the franchisor will be around for the long haul. After all, much of what you pay for in a franchise opportunity is the right to be associated with the franchisor’s brand and system, the right to use the franchisor’s proprietary materials, and in some cases, the right to an exclusive territory. If the franchisor goes out of business, all of these rights go up in the air (if not out the window), and you may well be left in a worse position than if you had just gone into business on your own in the first place.
The Franchise Experience
Many of the franchisees we talked with had to make a decision first on whether they would open an independent business or a franchised one. A few of their stories follow.
One Franchisees Story - Bill Higgins Journey From the Telecom Industry to HOODZ Franchise Owner
HOODZ offers numerous commercial kitchen cleaning services, and has established the largest oven cleaning service network in the country. While Bill’s background may not have been directly related, he appreciated the tight knit owner network offered by HOODZ and the sticky nature of the business model. In Bill’s own words, “Your customers are yours to lose.” As a new business owner, Bill also valued the guidance and structure associated with the franchise system. The model for success is available, all you have to do is execute. In October of 2015, he launched his location in central Indiana.