franchising a business - In corporate and commercial sense it is

Franchising as a term refers to honesty in French. In corporate and commercial sense it is a method doing business. The method include two parties a franchisor and franchisee. The franchisor licenses the trademark and the methods of doing business to a franchisee. The franchisee in exchange makes recurring payments which, usually is a specific percentage of gross sales or gross profit. Along with this he is also required to pay some annual fees. Businesses operating using this method are commonly referred as chain store, franchise outlet or simply franchise.

Why franchise

Franchising extends the scope expanding. By franchising a company can grow its business to its optimum size and maximum profitability. Many companies have made it big by distributing its franchise. A company can make it big by franchising a concept, growing to the level of an IPO and then taking the company public. Often the market values the company much greater than what the actual gross profit and sales of the company can justify. When the market feels if a certain company is promising it shows its faith form of stoking the company highly thus make the much richer than it would have thought.

Who can be a franchisor :

Not all business can go for franchising, there are specific criteria that qualify a company for to be a franchisor. For becoming a franchisor a company has to fit in the following profile

1. Unique Concept :- To go for franchising a company needs to have an original and unique concept that has a potential to market nationally and internationally.

2. Profitability :- This is the base of the business, wherein the concept should offer consistent profitability the degree of which can be predicted.

3. Systemized :- The concept should be supported with refined and efficient operating systems. Besides, the systems and procedures of the operating system should be in manual form.

4. Training :- When creating the system it should made such that the procedure\s can be easily explained to others, wherein the training is relatively easy.

5. Satisfactory Margins :- To provide with good return on investment to the franchisee the ratio should at least exceed 20 percent before taxes.

6. Affordability :- If the franchisee is expensive not many will go for it. To make the concept successful restrict it below $100,000 as many will afford this size of investment.

Benefits of franchising a business :

Most importantly franchising is the most systematic and an effective method of growing. Keeping in interest the growth factor there are several other benefits of franchising

1. OPM (Other peoples money) :- Normally there is always a scarcity of capital in growing business. Franchising offers a golden chance on building up a huge capital using OPM.

2. Motivated Management :- A motivated management is developed with franchising. Franchising offers growth to a company making it capable of employing experienced and qualified mangers. The franchise along with opportunity induces a need of having motivated and well trained mangers as a huge capital is at risk.

3. Efficiency and Profitability increases :- The efficiency of a company increases greatly after franchising. The enhanced efficiency is reflected in form of increased profitability. The growth in efficient and profitability is maintaining consistent as huge capital is at risk which also is a motivating factor.

4. Rapid Expansion :- Franchising enables a rapid expansion as the same company at one time stores all around the nation or globe. Moreover if the concept is promising there are many who are ready to take a risk.

5. Achieving Optimum size :

Franchising offers with golden opportunity of extending the scope and reach all over the globe. No other methods can offer this advantage.

6. Great Purchasing Power :- With the increased size of the business the needs also increase. Companies after franchising buys for the whole system which constitute huge volumes. This increases the bargaining and purchasing power of the company. The benefits of which can are reflected in increased profits. Moreover a company can pass down the benefits to its franchisees enabling them to sell at rates much lesser than other competitors.

7. Maximum Income :- by franchising a company earns in many ways. Revenue flows in form of franchise fee, franchise royalties, equipment sales, supplies, materials sales, sales of Services Property, rental, rebates from vendors of equipment and supplies.

Draw backs of franchising :

1. Depended on sale:

The future of franchising depends only on sale. If there is no se\ale the company will dye.

2. Complex Management :

Often if becomes difficult to manage a franchising company. In this business the franchisee controls the business if sticks to the operating system it is fine or things become really difficult.

3. Litigation :

This the biggest problem associated with franchising. Often problems arise between the franchisee and franchisor.

Steps for franchising :

Franchising is a systematic business method and includes various stages or steps:

1. Registration :

The first and the most important part of franchising is to register the Trade mark and Trade name with the Trade mark office. It is also necessary for the company to register the same in all states it intends to do its business.

2. Having Multiple Units :

When franchising it is assumed that the company has its operating unit and is planning to open the subsequent units depending on the availability of money and time. When opening the next unit the company should have an idea of suitable locations, size. A company with a good past records has better prospects in franchising.

3. System Development :

For a successful franchise develop a specific system for very attribute of the business which encompass site selection, lease negotiation, training, unit operations, hiring/firing, advertising, accounting, etc. Putting the system in manual form makes it easier to teach others.

4. Training :

To assure the success of the franchise offer strong training to the franchisee. Knowledge transfer will benefit the companys overall performance and profitability.

5. UFOC :

Refers to Uniform Franchise Offering Circular. This document contains the complete details of the company including the history, objectives and term and conditions. This also includes the breakdown of the required investment, financial statements for the last 3 years (audited), the franchise agreement, a listing of existing franchises, litigation history and many other details. The company requires to give this to all prospectus franchisees before the first meeting.

6. Franchise Marketing Program :

A marketing program is about the marketing strategy of the company, whether it will sell its franchisee in large number or it will support the franchisees to increase their profitability.

A logical and calculated approach towards franchising will be a golden handshake with opportunity.

Franchising a Business What is franchising :