What is a Franchise Owner?
A franchise owner, or a franchisee, is someone who buys a business that is part of a chain (think McDonalds, or Kentucky Fried Chicken), using the same name, trademark, product, and services. Buying a franchise establishes a relationship with the successful business (the franchisor), provides on-going brand awareness, and gives the franchise owner a proven system to work with. The business may be co-owned by the umbrella company and the franchise owner, or independently-owned.
What does a Franchise Owner do?
According to the Small Business Administration (SBA), weak management is the number one cause of small businesses failing. This is where franchises shine, as they get up and running faster, and become profitable more quickly because of the management that is already set up. What the franchise owner is paying for is an already established business, marketing, and operating strategy. By using the umbrella company's system and existing presence in the market, there will be a reduction of risk and a quicker return on investment.
Three Types of Franchises:
Business Franchise (most common) - the main company, or franchisor, can expand by offering independent business owners their name, trademark, and established business. They help the new owners with the launch as well as with training on how to run the business. In exchange, the franchisor is paid royalties and fees by the franchisee. Some examples include Pizza Hut, McDonalds, and Burger King.
Product Franchise - manufacturers will allow retail stores to use their name, their trademark, and their product(s). They also control the distribution of their product, and usually have a minimum amount of product the store must purchase. There may be fees that need to be paid as well. An example of this type of structure would be a tire store.
Manufacturing Franchise - is a common franchise among food and beverage companies (such as Coca-Cola). The franchisor will grant the manufacturer the right to produce and sell goods using their trademark and name. In the case of Coca-Cola, for example, Coca-Cola supplies the syrup concentrate to bottling companies, who then mix the syrup with water and bottle the product.
A big plus for the franchise owner is that the business is already 'known' and recognized by the public. Customers much prefer dealing with a brand they have heard of and can trust. They also know the quality of the product or service, as one location is comparable to that of another location.
A franchise owner will also reap the benefit of getting wholesale pricing on goods and supplies, as the umbrella company typically buys in bulk for the entire chain, and can pass on their savings.
Note: It is advisable to check out the background of the franchisor to find out more about their reputation before investing with them. Look them up on the Better Business Bureau, Hoovers, and also contact the American Association of Franchisees and Dealers (AAFD).
Procedure To Buy
When setting out to buy a franchise, a business loan will usually be needed. In order to get the business loan, a business plan is necessary. The bank will require detailed reasons as to why you believe you are qualified to run the business, a detailed business strategy, and financial projections of the franchise.
After a rigorous evaluation process, the right to a franchise is sold to the franchisee for an up-front fee. After the fee is paid, a contract will be signed for a specific length of time (usually five, ten, or twenty years). The contract will lay out responsibilities, the rights to use the system, the rights to the name of the business, and the training needed to start the business. It does not include the inventory, furniture, fixtures or real estate. Once the contract expires, it will need to be renewed.
The contract (or franchise agreement) will also outline terms for any other on-going fees, such as royalty fees, advertising fees, payments for on-going services and support, or supplies. These fees can be taken as a percentage, can be set up on a sliding scale, or set as a fixed amount.
What is the workplace of a Franchise Owner like?
There are a variety of places a franchise owner can work, depending on the type of franchise they own. Industries that have franchises include automotive, beauty, art, travel, recreation, business, education, pet, entertainment, financial services, food, health, fitness, technology, retail, senior care, vending, moving and storage, child care and services, cleaning and maintenance, and medical.
Some franchise owners choose to take an active role, and will work alongside their employees, while at the same time managing the business. Other franchise owners own more than one franchise and visit each of their locations on a regular basis to make sure things are running smoothly.
Franchise Owners are also known as: