What is franchising?

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In the words of Brian Smart director general of the British Franchise Association (BFA), Franchising is a highly specialized and professional business technique that requires detailed and co-coordinated attention to all aspects of running a business – financial, operational, administrative, human resource and legal as well as marketing. If it is done well, franchising is a powerful tool for business development, growth and competitiveness.

There are many definitions to what is franchising. Is a method of marketing goods and services, etc etc, but the one that concerns us is the popular business use of the word franchise, defined as the business format franchise.

The business format franchise is the grant of a License by one person (the franchisor) to another (the franchisee), which entitles the franchisee to carry on business under the trade mark/trade name of the franchisor and doing so to make use of an entire package (know-how), comprising all the elements necessary to establish a person previously untrained in the conduct of a business to run the business developed by the franchisor under the brand and, after training, to run it on a predetermined basis with the continuing assistance.

Through franchising it is possible to expand a network using the financial and manpower resource of others. However, the franchisor needs to develop an infrastructure to enable it to cope.

BFA Defines Franchising as a contractual licensee granted by the franchisor to the franchisee which: (basic parameters)

  1. Permit the use of the name.
  2. Franchisor exercises control
  3. Franchisor provides on going support.
  4. Franchisee pays money – for product and services.

The business format elements fundamentally comprise:

  • The entire business concept
  • A process of initiation and training in all aspects of the running of the business, according to the concept
  • A continuing process of assistance and guidance.
  • The entire business concept

Blue print for conducting the business:

  • Eliminate risk inherent in opening a new business
  • Product and service range determined
  • Operational aspects thoroughly market tested in pilot operation.
  • Continued backing of an organization (head office) – a support team.
  • Set out in detail exactly how the business should run.
  • Process of Initiation and training

Franchisee must be trained in the know how which are necessary to operate the business, according to the blue print.

  • Training in specialized equipment, marketing methods, preparation of the products, and application of processes, stock selection, staff utilization, staff selection and training, business management technique, accounting and reporting methods, marketing and promotions.
  • Continuing process of assistance and guidance:

The franchisor needs to provide the following services on a continuing basis.

  • Access to the franchisor team – head office, to receive knowledgable support
  • Regular visits – field support staff to prevent deviations
  • Liaisons between franchisor and all its franchisee network to exchange ideas and experiences.
  • Product and concept innovation
  • Training and re-training facilities
  • General market research
  • National and local advertising.
  • Bulk purchasing opportunities
  • Management and accounting advice and services
  • Publications of a newsletter
  • Research into materials, process and business methods

It is important for a prospective franchisor to recognize what is the nature of the franchise which is to be created and it will then be clear what should be built into the structure of the franchise scheme and contract.