What is the Purpose of Franchising? Essay

Franchising is a method of marketing goods. It is of import that this basic fact is understood ; franchising is non an industry – so the usage of franchising as a selling method crosses industry boundary lines. The application of franchising rules to each separate industry involves the blending of the ingredients to bring forth the right and merchandise.

Having grasped that basic fact, it should be appreciated that as franchising is a selling method it should be approached in a flexible manner. Franchising in its full sense – the concern format franchise – may non be a suited method for your concern. However, you may well happen that certain elements can hold application and supply benefits. If that is so adopt them, even if the terminal consequence is that you have non adopted a franchise for your concern. In the concluding analysis you have to do and populate with your determinations – if franchising is non right for you, or you are non right for franchising, do non ship on that class for it could good stop in catastrophe. But, you should non take franchisees into catastrophe – for that they do non necessitate a franchisor: many of them could pull off rather good on their ain.

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Other methods of selling which are good known involve all degrees from industry to retail sale. Some makers or jobbers appoint agents – those who will move on their behalf with power to set about adhering committednesss. Others appoint distributers with whom they have a buyer/seller relationship. The distributer is an independent operator who may sell many viing scopes. Some makers enter into license understandings with others who manufacture their merchandises or who carry out procedures ensuing in the production of goods. These agreements may besides affect trade grade licenses coupled with know-how understandings under which the licensee manufactures or completes the industry of goods for sale.

None of these understandings is the kind of marketing method with which this manual is specifically concerned although, at times, concern people refer to them as ‘franchises ‘ . The look ‘franchise ‘ is besides used to depict the right given for the operation of commercial Television and wireless webs. The operation of a motor auto makers ‘ franchise is normally called a ‘franchise ‘ and in many instances rather justly so.

The suggestion fell on unfastened heads who truly understood that it was possible to spread out a web utilizing the fiscal and manpower resources of others. However, the franchisor had to develop an substructure to enable it to get by. That substructure, the manner in which it is put together and sustained, is what this manual is concerned to explicate.

Fact TO SUPPORT – Advantage

For franchisors:


Franchising is one of the lone means available to entree venture investing capital without the demand to give up control of the operation of the concatenation in the procedure. After the trade name is carefully designed and decently executed, franchisors are able to sell franchises and expand quickly across states utilizing the resources of their franchisees, earn net incomes commensurate with their part to those societies while greatly minimixing the hazard and disbursal that would be built-in in conventional concatenation operations.

Legal considerations

The franchisor is relieved to obtain the necessary licences and licenses to get down a new mercantile establishments. In some legal powers, certain licenses are more easy obtained by locally based, owner-operator type appliers while companies based outside the legal power find it hard if non impossible to acquire such licenses issued to them straight. For this ground, hotel and eating house ironss that sell alcohol frequently have no feasible option but to franchise if they wish to spread out to another province. Additionally, the franchisor is relieved of the duty to transport liability insurance on the independently owned franchise units that produce the gross gross revenues of the franchised system since this is the duty and duty of the franchisees under the franchise understanding. Equally long as the franchisor ‘s operational manuals is followed by the franchisees, the franchisors are by and large ever protected from any liability for any incident that occurs on the belongings of the franchisee. Franchisors can sell franchises without doing any representations.

Operational considerations

Franchisees are said to hold a greater inducement than direct employees to run their concerns because they have a direct interest in the start up of the branded concern and the touchable assets that wear the trade name name. The demand of franchisors to closely size up the twenty-four hours to twenty-four hours operations of franchisees is greatly decreased. Franchisors can increase their net incomes on the gross gross revenues of the franchisees and avoid the operational disbursals for the physical units that wear their trade name names. Franchisors can diminish their hazard and hence increase their net incomes as their franchisees bear the disbursal of runing the units and the disbursal of being employers.

For franchisees:


Opening a franchise is a manner of personal concern.

Quick start

As practiced in retailing, franchising offers franchisees the advantage of get downing up a new concern faster based on a proved hallmark and expression of making concern, as opposed to holding to construct a new concern and trade name from abrasion. A well tally franchise would offer from site choice to rent dialogue, preparation and on-going support and statutory demands and trouble-shooting.


Franchisors normally offer franchisees important preparation, which is non available for free to persons get downing their ain concern. Although preparation is non ever free for franchisees, it is sometimes supported through the traditional franchise fee that the franchisor collects and tailored to the concern that is being started. When preparation fees and travel disbursals, etc.. are required beyond the initial franchise fee, these fees are deductible as portion of the startup disbursals of the concern.

FACTS TO OBJECT – Disadvantage

For franchisors:

Limited pool of feasible franchisees

In any metropolis, there may be merely a limited pool of chances who have both the desire to buy and get down up a franchised concern, as compared to the pool of persons who can be hired and trained to aptly pull off directly-owned concerns, as paid employees. However, in periods of recession where traditional good occupations are in short supply, this disadvantage disappears because those who ca n’t happen good occupations are willing to put money in a franchise as a agency of self-employment.


Successful franchising necessitates a much more careful vetting procedure when measuring the limited figure of possible franchisees than would be required in the hiring of direct employees who may hold experience in the construct sector. An unqualified director of a directly-owned mercantile establishment can easy be replaced, while, irrespective of the local Torahs and understandings in topographic point, taking an unqualified franchisee who owns the touchable assets of the concern is much more hard.

For franchisees:

No warrant

There is no warrant of fiscal success for the franchisee made by the franchisor in the written revelation handbill and the existent franchise understanding. While the estimated startup costs of the franchise are an implied “ net incomes claim ” some franchised mercantile establishments do neglect. Unfortunately, the unit fiscal public presentation statistics are non required to be disclosed to new purchasers of franchises and this skip makes it impossible for new purchasers of franchises to measure the odds of success and failure of their investing in the franchise in footings of profitableness and failure as experienced on a unit footing of the franchise system.


For franchisees, the disadvantage of franchising is a loss of control. While they gain the usage of a system, aid, preparation, selling, the franchisee is required to follow the system and acquire blessing for alterations from the franchisor. For these grounds, franchisees and enterprisers are really different. A franchisee “ is simply a impermanent concern investing where he may be one of several investors during the life-time of the franchise. In other words, he is “ leasing ” the chance, non “ purchasing a concern for the intent of true ownership. ” Additionally, “ A franchise purchase consists of both intrinsic value and clip value. A franchise is a wasting plus due to the finite term: the franchisor is merely obliged to regenerate the franchise if it chooses to contract for that duty. ”

Monetary value

Get downing a franchise concern carries disbursals. In taking to follow the criterions set by the franchisor, the franchisee frequently has no farther pick as to signage, uniforms etc. The franchisee may non be allowed to beginning less expensive options. Added to that is the franchise fee and on-going royalties and advertisement parts. The contract may besides adhere the franchisee to such changes as demanded by the franchisor from clip to clip.


The franchisor/franchisee relationship can easy do struggle if either side is moving in bad religion. An incompetent franchisor can damage its franchisees by neglecting to advance the trade name decently or by squashing them excessively sharply for net incomes. Franchise understandings is one-sided contracts wherein the contract footings by and large are advantageous to the franchisor when there is struggle in the relationship.


Yes, franchising is the best concern program. Why?

Franchising your concern can be a really successful manner of spread outing. Some of today ‘s largest concerns have used franchising to finance and speed up their growing into universe trade names – McDonalds, Kentucky Fried Chicken, Pizza Hut, Burger King, Body Glove and the Body Shop.

However, franchising must be planned measure by measure: –

It must be pilot tested with company owned and operated mercantile establishments.

Business must be successful, typical & A ; replicable.

Take proper professional advice – Solicitor, Banker, Accountant and perchance Franchise Consultant.

Take clip to compose an operations manual.

Choose franchisees really carefully and sagely.

Avoid overselling and prognosiss.

Focus on franchisee satisfaction and profitableness.

Have first category preparation.

Maintain good on-going relationships.

Keep developing the Franchise ‘s position and maintain criterions.

Ensure selling, advertisement and PR are first category.

In commercial pattern there are some elements which considers fundamental in full concern format franchising. These are:

The proviso to the franchisee by the franchisor of initial preparation in the operations of the franchised concern – this is possibly saying the obvious for the franchisee would non be able to transport on the franchised concern without such preparation.

The fact that a franchisee will have their concern ; the franchisee is the proprietor of the concern although they are obliged to run it in conformity with the franchisor ‘s system and under the umbrella of the franchisor ‘s name.

The franchisee will hold to do a capital investing in their concern. This is really of import. The franchisee must hold their ain resources at hazard. The investing they make must be sufficiently important in relation to the franchisee ‘s entire resources for the individual to be worried that they might lose it. Conversely they will happen motive in their ability to increase the value of their investing in add-on to bring forthing a net income yearly. A well-motivated franchisee with their ain resources at interest will constantly carry on the concern far better than any director would, to the common advantage of themselves and the franchisor.

The advantages of franchising for a franchisor may be summarised as:

The growing of the web is achieved utilizing the fiscal and manpower resources of the franchisee ;

The franchisor is non concerned with the twenty-four hours to twenty-four hours operation of each mercantile establishment ;

The franchisor ‘s organisation is compact and can gain net incomes without engagement of high capital hazard ;

The web has an ability to turn quickly ;

The franchisor has less staff and it ‘s jobs ;

The direction of each mercantile establishment is the proprietor who will be given to be good motivated to be successful ;

It provides wider mercantile establishments for merchandises and services ;

It enables the franchisor to serve national clients utilizing their web of mercantile establishments.

Franchising is an exciting selling method ; when it is decently structured and good run it provides benefits and satisfaction for both parties. It is non an easy path to wealths for franchisor or franchisee nor is it a Panacea for the ailments of a ‘sick ‘ concern. The constitution of a franchise has to be under-take with accomplishment, forbearance and capital. The clip graduated table for set uping a franchise system and fixing it for selling can be every bit long as two old ages and it can take another three to six old ages before the franchisor begins to see net net incomes and hard currency flow. The capital demands of the franchisor have to reflect these clip spans.

For an illustration of Franchise Opportunity:

RIDPEST is a cardinal participant in the pest control industry in Malaysia and the first of its sort to ship on the franchise path. The drive force behind the growing and acknowledgment of the RIDPEST trade name is a strong set of corporate values that translates into continued growing for the hereafter.

Franchising is doubtless one of the fastest-growing sectors of the Malayan economic system. Smart new concern proprietors prefer a franchise, because it helps lower the hazards of get downing out, and offers nest eggs on things like selling and buying merchandise.

Over the old ages RIDPEST had developed and refined its system to the point where we believe it gives its franchisees the really best opportunity to construct a successful concern.


A proper concern program guarantee the long tally and success of a concern whereas a concern which lacks of proper programs and motive can non last in the market and the tough competition the concern universe have to offer.

There are many ways a concern program is introduce and implemented in a trade. However, to hold a proper concern program it is necessary that the concern program is on proper format and is non made casually or hastil.


Application signifiers

Franchise loan

List of franchisor

Panel franchisor

Perbadanan Nasional Berhad ( PNS ) application checklist

Sample franchisor missive

Graph or chart

Mentions of beginnings

Mentions of beginnings:

The franchisor ‘s Manual – Martin Mendelsohn

Masters of Franchising – Mark Henricks


Business For Sale Magazine



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