These articles are an introduction to franchises, i.e. franchising. There is underlying concept when a small business owner considers a franchise operation. He needs to be clear in his understanding, this is a business partnership. You must accept the relationship format and realize the exchange of information/help for financial payment over time.
The primary reason for the franchise arrangement is the increased net profit for the franchisee in using the franchisor’s name, logo, brand, or trademark. The franchisor 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 franchisor’s name.
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’.
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.
A franchise relationship is a partnership between two parties. The primary party is the Franchisor. This entity owns a master group of similar business selling/providing the same product or service. The Franchisor sells a ‘Right’ to his name and his conditions in exchange for a royalty fee. The second party is the Franchisee.
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.
