Franchise Operations

Gain an understanding of franchise operations in this section. Learn about the relationship between the franchisor and the franchisee. If you choose to create this ‘Partnership’ then use the positive attributes to your advantage.

Franchise Agreement Costs – How Much Does it Really Cost to be a Franchisee?

Franchise Costs

The primary reason for the franchise arrangement is the increased net profit for the franchisee in using the franchiser's name, logo, brand, or trademark.  The franchiser charges an upfront fee called a Franchise Fee, monthly Royalties, in some agreements a License Fee and Marketing/Advertising minimums.  These additional costs to the franchisee are paid to use the franchiser's name. 

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Franchise Fee, Royalty Fee, License and Marketing Fee – Franchise Agreement Terminology

To negotiate a franchise agreement, the potential franchisee needs to fully understand the terminology used in the franchising industry.  Often, new franchisees misunderstand the terms ‘Franchise Fee’, ‘Royalty Fee’, ‘License’ and ‘Marketing Fee’. 

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The Franchise Agreement – Geographical Territory Clause

Geographical Territory Clause

Every franchise agreement should discuss the issue of the source of customers.  This is known as the geographical territory, protected territory or exclusive territory.  Many agreements spell out the zone or area of your customer source.  It is important to understand the Geographical, Protected or Exclusive Territory Clause in the Franchise Agreement. 

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The Franchise Relationship

Business Trusts

A franchise relationship is a partnership between two parties.  The primary party is the Franchiser.  This entity owns a master group of similar business selling/providing the same product or service.  The Franchiser sells a ‘Right’ to his name and his conditions in exchange for a royalty fee.  The second party is the Franchisee.

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Introduction to Franchises

Franchises

Simply put, Franchising is a partnership relationship.  As a small business owner, you have to decide if you truly want to be in a relationship with an authority in your business operation.  This can be a mutually beneficial arrangement or a nightmare from day one.

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