Franchises are generally owned and operated by experienced business owners who provide the franchisee with a well-developed business model that will support a well-developed franchise system, together with a well-developed business model and business model support services. The franchisor is basically acting as a mentor to the franchisee, by providing the franchisee with industry knowledge, proven business models, training materials, and guidance that contribute to the success of the franchisee in the long run.
Alternatively, a franchisee is a small business owner who owns an independent business which operates as a third-party retail outlet under the brand name of a franchise while the franchise itself operates as an independent business. This means that the franchisee has obtained the right to use an existing business’s trademarks, associated brands, and other proprietary knowledge in order to sell and market the same brand at the same level as the first business, as well as maintain the same standards as that company.
Points to Check before Signing the Franchise Agreement
- Franchise Territory: A Business franchise will cover a particular area that is laid out in the franchise contract that refers to each franchise location. Other franchises are not permitted to have their locations within a specific distance from each other. It is done in order to ensure that there is not too much competition in the area where the franchise will be located, which can limit the potential sales and the success of the location well into the future
- Term & Renewal: Most franchise agreements provide a fixed franchise term of five to ten years. Renewal options are also available for some of them. It is necessary to have a long-term contractual relationship with the franchisees because of the franchisees’ significant investments, which have resulted in them acquiring franchise rights. To ensure great success with your franchise unit, make sure the renewal fee is not excessive. Before signing your franchise agreement, consult a lawyer
- Training: It is of the utmost importance for a franchisor to make sure all franchisees’ operations are uniform and consistent across the board. It is essential for the franchisor to provide initial training to its franchisees to help them understand the core concepts and standards that are stated in the franchise agreement
- Advertising & Marketing: A franchisor is responsible for constantly marketing and promoting their brand in order to enhance their brand power and visibility. In most cases, franchisors promote brands, and franchises are responsible for contributing by participating in brand building activities. It is also important to include advertising and brand promotion in the franchise agreement. Besides that, it should also establish the franchisee’s advertising commitment, and what fees they will have to pay towards those costs, as well
- Franchise Model: Finding the right franchise model is crucial to the success of your business. There are specific rules for how franchisees must operate their units in each franchise. Franchisors have various franchise models to choose from. Understand the franchise model and how it aligns with your visions and goals, how much freedom you have in managing it, etc.
- Royalty: Franchisees are also required to pay a percentage of their sales in addition to their initial fees. Franchisors use a variety of royalty structures, but most require franchisees to pay an ongoing royalty, usually a percentage of total sales, usually monthly. Franchisors and franchisees must agree on the royalty percentage and type, payment method, and due dates in the franchise agreement.