Franchise Module

Franchise:

                    Franchise means development. If you would like to run your business with passive income sources that time, business should be expand in multiple ways. Business goes hand and hand with marketing and franchising. There are lots of businesses which can be growing with franchise model. Franchise is replica of main branch or company.

 

Franchise Structure:

1.    Franchisee: A person, who will buy a franchise, is a franchisee. After franchising, Franchise buys the right to operate a business, while using the franchisor name and existing branding.

 

2.    Franchisor: This pertains to the company that sells franchises to franchisees. Franchisors are primarily the parent company that has settled and established processes, products, and branding. The same is then passed on to franchisees in exchange for a fee i.e. franchise fee or royalty.

 

3.    Franchise Fee: The up-front fee that a franchisee pays to a franchisor to operate a franchise business is termed as franchise fee.

 

4.    Royalty Fee: In addition to the Franchise Fee, as a franchisee, the obligation to pay a fixed regular amount or on Business profit to franchisor also exists. Royalty fee may be paid weekly, monthly or yearly, depending on the agreement. However the fixed amount may vary as the condition to pay varies i.e. sometimes a flat fee and sometimes percentage of sales. Tough there still exist scope for different fields and values adding on to royalty as a fee.

 

5.    Franchise Agreement: Agreement is nothing but a mutual consideration of two or more person (parties) with a passage of obligation on each other. When you are actually ready to invest in a franchise opportunity, you will need to review and sign the agreement that reads all the formalities and norms to be adhered to essentially a contract that outlines the responsibilities of both the franchisor and the franchisee. In case of any discrepancies or irregularity on wither end of the parties involved, this agreement can serve as a proof of acceptance and law.

 

6.    Franchise Disclosure Document:  This is a legal document required by the all parties and consulting firm initiating the franchise deal.

 

The document (FDD) includes:

·         Fees and cost of starting a new franchise

·         Franchisor history

·         Contractual obligations

·         Other key information pertinent to the franchisor/franchisee relationship

The FDD is usually updated annually, depending upon the franchisor and franchisee agreement.

For franchisees imperative that you review this document in order to completely understand what you are getting into.

7.    Master Franchise: A big venture having large business chains and functions find it often difficult to manage franchise at national level. For such big brands, there exists a tool i.e. an option to opt for master franchise. Master franchise serve all the functions that the parent franchisor can, but at the local level, providing better customer support with right interaction for you as a franchisee. Some big Brands are already practicing the master franchise options.

 

8.    Franchise Business Model

·         COCO: Company Owned- Company Operated

Every company begins operations with Company Owned and Company Operated Model of business (COCO) but after 3 years or 1000 Days, that brand gets well established, the company gets into a franchise model to reduce operational cost, capital cost and to increase the return on investment through the brand value that the company has created for itself. They would like to start Franchise branches or own company branches, But some brands create their own shops or branches and enhance business in different cities. Mostly showrooms will be in this kind of COCO model.

 

·         FOCO: Franchise Owned Company Operated

This model is accepted by Companies when they want to reduce their capital expenditure and expand faster in an already established market or in a known market. In this model the franchise owns the business but the brand and the operations is handled by the company with regular reporting done to the franchisee on performance of the business. The franchisee can oversee the business and question the Company in case of poor performance. This model is usually signed under profit sharing basis where in the company gets a bigger share of the profit compared to the franchisee as it is company operated.

 

·         COFO: Company Owned Franchise Operated

This model is accepted by Companies, when they want to reduce their operational expenditure. In this model the Company leases the operations of the business to an interested franchise to take over the operations of the business with the former holding trainings and SOP audits to ensure standards are adhered to. The business ownership still lies solely with the Company, the franchise can be changed when the Company identifies a more profitable and efficient franchisee. This model is accepted by the Company only in well established markets where the company has operated and got high return on investment.

 

·         FOFO: Franchise Owned Franchise Operated

This model is accepted by companies for faster expansion of business/brand presence and to penetrate completely new markets with the help of local business men. In this model the training of staffs, initial store setup is done by the Company and handed over to the Franchise to overseas the operations and maintain standards based on SOPs set by the Company. Then on the operations is independently managed by the franchisee. The Franchisee pays a licensing fee as per the agreed terms to the Company. Scheduled SOP audits are done by the Company to ensure high standards are maintained. When Franchise fails repeatedly in audits, the Company either levies fines or pulls out from the contract eventually closing the franchisee business.
But when well operated, the local market knowledge of the franchisee coupled with the business expertise of the Company are put to the right use there by fetching good profits for both the Company and the Franchisee.

·         FICO : Franchise Invested and Company Operated

This model is similar to FOCO but the difference here is unlike FOCO the franchise does not involve themselves in business operations at all. Only an agreed fixed amount is paid to the Franchisee by the company for the investment done by franchisee in the business. In this model there can be multiple franchise investors for a single business unit and the Company runs the business operations with end to end control of the supply chain.

 

Benefits of Franchising:

- Franchises offer the independence of small business ownership supported by the benefits of a big business network.
-You don't necessarily need business experience to run a franchise.
-Franchisors usually provide the training you need to operate their business model.-Franchises have a higher rate of success than start-up businesses.
-You may find it easier to secure finance for a franchise.
-It may cost less to buy a franchise than start your own business of the same type.
-Franchises often have an established reputation and image, proven management and work practices, access to national advertising and ongoing support.
-Capital will be secure in Franchise Business System.
-It improves better management system, quality system, long term commitment,Speed of growth is mandatory in business. 
-The problem is that opening a single unit takes time.
-For some entrepreneurs, franchising may be the only way to ensure that they capture a market leadership position before competitors encroach on their space, because the franchisee performs most of these tasks. 
-Franchising allows franchisors to function effectively with a much leaner organization. 
-The combination of faster growth, increased profitability, and increased organizational leverage helps account for the fact that franchisors are often valued at a higher multiple than other businesses. 
-The ability of franchisees to improve unit-level financial performance has some weighty implications. franchising also reduces risk for the franchisor. 

Franchising Code of Conduct:

The Franchising Code of Conduct is a mandatory code applied to all business arrangements that fall under the code's definition of a franchise. You will need to get a copy of the code if you are buying a franchise business.

The franchisor must provide you with the following:

The franchise code of practice
The franchise agreement
The disclosure document
The lease agreement for the premises (if applicable).

If You would like to Develop Franchise Contact us on 8850560056 or info.born2biz@gmail.com