⚡ Franchising Case Study
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How Does Franchising Work?
The first thing you need to prepare is a resume covering your personal background. Detail your educational and work history, along with your proof of residence. In addition, collect your personal and business, if applicable financial statements for at least the prior 12 months, including bank statements and credit statements. A large part of your financial background preparation will be covered in your credit report. Credit reporting companies Equifax, Experian, and TransUnion each independently track purchasing and payment history, along with job and residency history. Your credit reports can be obtained through AnnualCreditReport. Sometimes the information on one person can vary from bureau to bureau. If you find inaccuracies in any of your credit reports, you can have it corrected by contacting the appropriate bureau s with the contact information given on their respective websites.
Lenders commonly also use a credit score to evaluate your loan application in addition to your credit report. All three credit bureaus generate their own credit score based on the information within their respective systems. FICO scores range between and , and give the lender an overall feel of your credit situation. The higher your FICO score, the better. Elements used to determine the score are:. The weighted percentages given above are for the general population. The importance of factors can vary slightly from person to person depending on his or her unique situation. The conditions factor of the 5 Cs discussed above is covered by another document you will need to prepare before applying for financing: a business plan. The franchisor is a great resource in completing this step as much of the needed information can be found in the FDD.
Some franchisors even disclose potential earnings figures based on historical results from franchisees in the system Item Plus, some franchisors provide a business plan outline for prospective franchisees to use. For more, see our guide for creating a business plan for your franchise. The agency offers partial guarantees for the loans to the banks that participate in its programs. SBA approval refers to steps franchisors have taken to make the loan process as short as possible for their potential franchisees.
In a franchise situation, that means vetting the franchisee and franchise system itself. As a result, the SBA loan process is simplified, or streamlined, for the franchisee—not entirely avoided. The potential franchisee still has to prove that he or she is a good candidate for the loan. SBA loans are a common form of outside financing for franchisees. For more this loan program, visit its page on the SBA website.
Below are other ways prospective franchise owners can finance their franchise dreams, beyond the traditional loan route. Also provided are brief, real-world examples of how some franchisees used the various methods to acquire the necessary funding to reach their franchise ownership goal. Check Item 10 of the FDD to see if the franchisor offers financing options to its franchisees, or works with affiliates to assist franchisees with funding. While still not a majority, more franchises are providing financing assistance to franchisees to combat the current tight lending environment. Examples below are accurate as of the FDD of each respective franchise:. The first is having a family member or friend join in the franchise as a partner, sharing the financial and operational load of the business—and also the profits that come.
The second is a family member or friend offers a loan, which the franchisee pays back. Before accepting the money in either of these scenarios, create an agreement with all parties involved outlining the terms and conditions of the arrangement in writing. Strongly consider employing professional assistance from a lawyer in drafting the agreement so all parties are fairly protected. The goal is to have clarity on expectations beforehand to lessen the potential of hurt feelings down the road. The arrangement included Sandip making monthly lump sum payments to his cousin for reimbursement.
I [still] have a solid standing relationship with my family. Nowadays, prospective franchisees can link up with lenders online. A popular one of these sites is Boefly. Boefly operates much like a dating website. From there, the borrowers and potential lenders make contact with each other, eventually completing the loan process. Another financing marketplace franchisees can utilize is Biz2Credit. Biz2Credit helps entrepreneurs secure franchise business financing through its network of hundreds of lenders via online profiles. According to the company, it can arrange SBA loans, traditional bank loans, business lines of credit, equipment financing, business acquisition loans, commercial real estate loans, refinancing and merchant cash advances.
By comparison, independent operators have to negotiate on their own, usually getting less favourable terms. Some suppliers will not even deal with new businesses or will reject your business because your account is not big enough. Companies adopt the franchise model to expand their distribution by tying up with partners who open company stores in towns. The retail space is owned or rented by the local partner while the company supplies the business know-how and a proven business model.
Thus, a franchise business is a method that companies use to distribute products or services through retail outlets owned by an independent, third party operator, called the franchisee. The company that grants the right to the franchisee to do business under its trade name and techniques is known as the franchisor. The franchisee conducts business using the marketing methods, markets branded goods and services, and is able to leverage on the goodwill of the franchisor.
The franchisee pays an initial fee and royalties to the company, depending on the franchise agreement. Franchising is a system by which goods and services are distributed through outlets owned by the retailer or dealer. In this system, through a patent or a trademark license, the owner markets products and services under a brand name as per the predetermined terms and conditions. Franchisee is the partner who operates the same with permission from the owner.
The process of functioning between a franchiser and a franchisee is governed by the framework defined above as franchising. Franchising is a medium through which scale can be achieved without making large investments in creating internal infrastructure. A franchise is an agreement or license between two parties, which gives a person or group of people the franchisee the rights to market a product or service using the trademark of another business the franchisor.
Franchise is one form of exclusive retailing. It in fact, is not just a method of retailing. It is a method of marketing which is lying between entrepreneurship and employment. A franchiser is an independent business person who abides by the marketing plan of the financier and pays him a fee for the use of his brand and known-how. The franchising concept can be understood as license type transactions.
In India, all the contracts come under the purview of the Indian Contract Act, , which is based mainly on the English Law Principles. The agreement to the franchise is a standard printed agreement which deals with rights and obligations of the licensor and licensee. In its simplest terms a franchise can be considered a license from owner of trademark or trade name permitting another to sell a product or service under that name or mark. The usefulness of franchising lies in the fact that it helps the mega corporations to expand their business and popularize their brand names without investing large amounts of money.
The franchisee will be able to do business successfully without risks by utilizing the good-will attached to the brand name of the franchiser. Brand visibility is one of the important activities of every company. Today, competition in every field has become cut-throat and everyone wants to stay ahead in the race. One can remain ahead or get an advantage over the competitors is by indulging in business.
India has emerged as a major economy with consistent economic growth is truly impressive. Even the global meltdown of did not hurt India the way it hit western countries. That indicates resilience of the economy. India is one of the biggest emerging markets for various goods and services, ranging from bare necessities to expensive luxuries. Until , due to the archaic Foreign Exchange Regulation Act, FERA , almost all sectors of goods and services relating to the consumer markets in India were secure from the grasp of foreign investors. From the above mentioned definition we can interpret that:. Franchising is all about issuing an agreement for a specific period of time. Both parties must be mutually beneficial to each other.
Emotional bond has to exist between the franchisor and franchisee to maintain and develop the long-term relationship of the business. The franchisee has the rights to market the product or service using the operating methods of the franchisor. The franchisee has the obligation to pay the franchisor certain fees and royalties in exchange for these rights. The franchisor has the obligation to provide these rights and generally support the franchisee. In this sense, franchising is not a business or an industry, but a method used by businesses for the marketing and distribution of their products or services.
Both the franchisor and franchisee have a strong vested interest in the success of the brand and keeping their customers happy. Typically, there are two types of franchise methods. All of us have heard of booming franchise business. Every other day we witness increasing number of franchise food chains or retail chains in malls or popular marketing hubs.
In other words, when a company decides to distribute its products or services to an independent third party operator on a contract basis, it is known as franchise business. One of the ways to get an advantage over the competitors is by indulging in franchise business. Franchisee is the independent third party operator using registered products and services whereas the company that grants the rights to the franchisee to use its products and techniques.
The best contribution of franchises is in developing independent entrepreneurs who want to be their own boss. There are plenty of franchise businesses available worldwide which are being operated by self-driven individuals. However, before one decides to buy a franchise business, he must be aware of all the pros and cons involved with it. He must have proper understanding of franchise business. Franchise business is no doubt lucrative, but its success is very much dependent upon the strength of the brand and how it is being operated.
The agreement which contains the terms and conditions of sale by the franchisee is franchise agreement. The terms and conditions of agreement vary widely. He also allows the use of his brand or trade name, and standard operating procedure. In return, the franchisee agrees to operate under the specified conditions. He makes capital investment in the business, promotes and sells the product in the specified manner and agrees to pay commission or royalty to the franchiser.
Thus, franchising is a contractual relationship between a franchiser and a franchisee. The salient features of the franchising system are given below:. There can be more than one franchisee. He also pays a regular license fee which may be an agreed percentage of sales or profits. The franchiser initially sets up the business to be run by the franchisee. He gives an undertaking not to carry on any competing business and not to disclose confidential information regarding the franchise. On the expiry of this period, the agreement may be renewed with the mutual consent of both the parties. This is the most common type of franchise.
In this arrangement, the franchisee acquires the right to use or follow a business format and also the best practices and processes associated with it. The franchiser company generally assists the independent owners significantly in launching and operating their businesses. In return, the business owners pay fees and royalties to franchiser. Hence, the franchisee acquires the right to use all the elements of a fully integrated business operation. Such franchisees maintain the design and styling aspects determined by the franchiser in their retail environments, ranging from the product offered to store design, ambience, atmospherics, and internal infrastructure to service standards to deliveries.
Through this kind of agreement, manufacturers allow retailers to distribute their products and use their brand names and trademarks. They also monitor and control on the way retail stores distribute their products. In this case, franchiser offers the right to produce and sell goods to a manufacturer under its brand name and trademark. This type of franchise is generally popular among food and beverage companies.
For example, soft drink bottlers and canners often obtain franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. The major soft drink companies supply the concentrate to them, which are further processed, packed, and distributed by the regional manufacturing franchises. One example is Gemini Distilleries Pvt.
Ltd, Goa, a manufacturing franchise of Bacardi Ltd for manufacturing of winery products. This concept works on the format in which an independent business owner buys and distributes the products from one company. The company supplies the business owner with clients or accounts, in return of which the business owner pays the company a pre-decided fee. For example, the business owners may obtain vending machine routes and distribution rights, through this type of franchise arrangement e. Retailer brands and companies often look toward franchising as a key operating model for expansion from scale, geographical coverage, and time perspectives.
For example, Gap is looking forward to script a new story in India as it struggles to maintain customer loyalty in markets across the world. The company was set up in by Doris and Donald Fisher and has presence in around in 90 countries through around 3, company- operated stores and franchise stores. So Gap hopes to leverage the increasing fashion consciousness and latent awareness the Indian consumer has about its brands.
Under the franchise arrangement that the two have drawn up, Arvind has invested in infrastructure and Gap is providing support in terms of brand name, merchandise, layouts, fixtures, and so on. Gap has manufacturing facilities in and around India, which is another strategic advantage. There are various points which will help a company to go for franchising. Franchise is the key to rapid market expansion. It helps a company to growth rapidly and expands the range of markets in quick time and without incurring large investments.
The computer education network of NIIT is a good example of rapid growth through franchising. It has able to build a network of over branches across the country through franchising. Brand building is indeed a journey. Building a brand has everything to do with capturing the hearts and minds of consumers. A brand incorporates and conveys the values and traits that a company wants associated with their product or service. Establishing a strong brand can have significant value, and truly is a journey that companies should embark upon in their quest to be successful. The owner of a business can delegate certain aspects of the business to others and it creates a job description. A quality job description is one that not only works for your employees, but is legally compliant, and also fulfils many other requirements.
When someone is buying an existing company through franchising, it is almost always less expensive. Individual franchise agreements where it involves the sale of a single franchise for a specific location. An area level franchise that allows the franchisee to own and operate a specific number of outlets in a particular geography. Master franchise agreement, which is similar to the area finance agreement with one major difference. Master franchise in addition to having the right to open and operate number of stores or units, also has the right to offer and sell the franchise to other people in the area.
The people who buy franchise from a master franchisee are called sub-franchisees. At times one could take the rights from the franchiser to sell the rights to operate to other individuals. They act as sub-franchising units. This type of franchising is called sub-franchising. Multi- unit franchising allows the franchisee to open multiple units, this helps them strike a better per unit rate with the franchiser. In this type of operation, the franchisee is likely to oversee the functioning of the units at a higher level while appointing independent teams for running day-to-day operations. Franchising system depends upon a continuous contractual relationship between the franchiser and the franchisee.
The franchiser may be a manufacturer or a service organisation. A franchise agreement is based on a unique product or service owned by the franchiser. The success of a franchising system depends upon mutual faith and trust between both the parties. Franchising is a popular way to start a new business yet like everything else in life it also has some pros and cons. One must be aware of all the concerning features of franchising business. There are plenty of lucrative franchising business opportunities. But the first thing one need to figure out is the type of business that he wants to get into.
The laws relating to franchising are excellent so far as western countries are concerned. In India the concept of franchising is in its nascent stages. So the rights and liabilities of the franchiser and the franchisee have not been dealt with elaborately under any law. Generally the law of contracts is applicable to franchise agreements. The franchise agreement must be lawful and not against the public policy in India. The franchising agreement is considered licensing contract in India with a single difference relating to the territorial operation of the business.
Some of the laws that indirectly cover the area of franchising in India are:. Intellectual Property Law and Franchising in India:. Intellectual Property rights should be protected very carefully in any country so as to make the franchising system successful. Otherwise when the franchiser enters into new territory with its products, its product may be copied, and brand name may be misused which in turn affects goodwill of the franchiser. This Act has been enacted to provide for the registration and better protection of trademarks and for the prevention of the use of fraudulent marks on merchandise. The best way to protect a trademark must get it registered in India. India has made a step towards fulfilling its international obligations.
Design has now been defined as only the features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article whether in two dimensional or 3D or in both forms. Application for design registration can be made in any class by the proprietor of the design. Registration is granted only in one class. The proprietor of the Design shall have copyright in the Design for 10 years from the date of registration. The Copyright Act can be used successfully by the franchiser when he wishes to protect his franchising manual.
The manual contains the entire technique of running the franchise business. The manual should not be used unauthorized or improperly by any other person without having the permission of the franchiser as it amounts to violation of copyright being held by the franchiser. There are various enactments concerning labourers in India. All franchising contracts are amenable to labour laws in India. Labour laws govern the day-to-day conditions of employment in a franchising system. When a franchise outlet is closed or shut down, then the labour laws play a vital role in determining the compensation to be paid to the employees of that franchise outlet by the master franchisee, franchiser or franchisee.
The product or service of the franchise operation is probably the most significant and important aspect of the successful franchise. A franchisee, must maintain the high quality and standards of the product or service being provided. It is absolutely essential that the franchise maintain a positive reputation and that you satisfy the customer needs. It must realize the importance of the product or service not only satisfying the current needs of the customers, but also their future needs. The business format process is very important to the successful franchisee. These processes which must be carefully developed and supported include — marketing, promotion, brand recognition, management, training, accounting services, and financial support.
The franchisee must develop proper processes to ensure the continued success of the franchise organization. The franchisee is in business to ensure profitability. Franchisee are generally desirous of obtaining a profit, not only for the present day but also for a long time into the future. They must be able to ascertain the profits, revenues, and even costs of goods associated with your specific franchise business. You need to be able to accurately determine what the important costs of goods sold, labor costs, and expenses are in your specific business. The franchisee needs also to be able to ascertain all start-up costs, franchising fees, royalty fees, advertising fees, and other fees which must be paid by him to the specific franchisor.
The greatest asset of the business will be the people with whom you work. These people are the individuals who will reach and obtain the high standards of performance which you desire within your organization. These people may share your vision if properly explained. These people are the ones who will work with you, or against you, in developing your business. Many franchisees spend considerable amount of time away from their desks helping their employees during the peak periods of their business. Quality is infectious. The franchisee needs to instill this desire for excellence through example in all employees.
Franchise Agreement :. The following comments generally apply not only to unit franchises, but also to development and master franchise agreements, unless expressly stated otherwise. A franchise involves the franchisor in granting the franchisee certain rights over a certain area for a specified period. Exactly what those rights, the area and period are is a matter of negotiation between the franchisor and the intending franchisee. Little, if anything, is open to negotiation with domestic franchising but, on the international scene, it is quite the opposite and both parties must carefully think that what they want out of the relationship to make it worthwhile.
System and Intellectual Property Rights:. Clauses protecting this intellectual property and ensuring that the franchisees do not abuse it are necessary. It is usual for the franchisee to want as large an area as possible so as to give him the largest possible return on its investment. The franchisor, however, must only decide upon what territory he is willing to grant after taking account of a number of criteria concerning the territory and the franchisee. The territory should be one geographical, political, cultural and economic unit, which allows a planned approach to development of the franchise. A Memorandum of Understanding MOU is a legal document describing a bilateral or multilateral agreement between parties.
It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. These are principles or regulations governing conduct, action, procedure, and arrangement. A standard, model, or pattern regarded as typical: the current middle-class norm of two children per family. Rules are something that are supposed to be followed, norms are something that are just a typical happening. As the name suggests, these are cases where both the franchisor and the franchisee make joint investments into the business the space typically would be provided by the franchisee. They would then divide operational responsibilities, working capital as well as profit-sharing in a manner acceptable to both the parties.
The franchisee will inevitably demand exclusivity in order to give him the comfort of knowing that he will not be in competition with a third party and that his investment is more secure.When Universal presented concept Franchising Case Study for the Franchising Case Study film poster, director Franklin Franchising Case Study pleased with it. Even larger companies are being Franchising Case Study to franchising, thus, making franchise a mere lucrative business for the franchisee. He should carefully prepare a feasibility report and Franchising Case Study all the Franchising Case Study involved Franchising Case Study buying and Satans Deception a franchise. The other hurdle for Franchising Case Study franchiser is that few entrepreneurs are willing Franchising Case Study take Franchising Case Study a new franchise without Franchising Case Study guaranteed amount of sales. Article Shared by.