1

What is Franchising?
Franchising is an arrangement where a party, which has developed a proven way of running and managing a business successfully, licenses another party the rights to operate that business format under the trade or service mark(s) or trade name(s).  The business arrangement involves a formal legal contract between the two parties.

2

What are the advantages of Franchising?
Higher chance of success.  There is always a risk in any business venture.  However franchisees can depend on the franchisor’s proven method developed over the years.  Hence, the chance of success as a franchisee is many times higher than running your own independent business.

3

What is shorter learning curve?
The franchisor has spent many years and substantial financial resources to be build up, develop and document how the business should operate.  Franchisees will gain for this wealth of expertise and knowledge from the franchisor, thereby requiring a much shorter time to learn how the business should be run.

4

What is meant by established trademark / service?
The franchisor’s name has been familiar to the consumer for many years.  Franchisees will benefit for the goodwill and recognition of this name by customers.

5

What is meant by Economies of Scale?
In a franchise, there is pooling of the purchasing needs of all franchisees.  Collectively therefore, they have a stronger purchasing power which translates into lower cost of goods and services.

6

What is meant by Transfer of Management Expertise?
The franchisor has a wealth of experience and expertise in managing the business.  In a franchise, the franchisor has invested interest in transferring this “know how” to franchisees to help them succeed.  The success and profitability of the franchisor are usually directed linked to that of the franchisees.

7

Training
Franchisees will receive training and guidance from the franchisor to enable them to perform better.

8

Support services from Franchisor
Franchisees can usually depend on the franchisor to provide relevant support services at a lower cost.  The franchisor will assist franchisees in stag recruitment, accounting, location to better premises, conduction of local promotion et cetera.

9

What is involved in Franchising?
Period of contract.  This is the period of validity of the legal contract between the franchisor and franchisee.  It is set by the franchisor.  This legal contract will be for a period of 3 years.  Contract renewal will be done at 30% of the initial License Fee period at the beginning of this contract.

10

What is Initial Fee?
The initial fee is the upfront payment that the franchisee must make to the franchisor to obtain the rights to the business format and trade or services mark(s) or trade names(s) for a specified period.  In return for this gee, most franchisors provide service like centre opening assistance, design and layout of the premises to facilitate an early conversion to a franchise outlet.  It is good to find out exactly what services and/or goods will be provided for the amount paid.

11

What is meant by Royalty / Management Fee?
This is an on-going payment usually made monthly, by the franchisee to the franchisor.  The fee is usually based on a percentage of the gross monthly sales.  However, it could also be a fixed fee or a variation of one or both.  In return for this gee, the franchisor usually provides management services like updating of the procedures and continuous new product development.

12

What is Franchise Agreement?
The franchise agreement is a legal contract between the franchisor and the franchisee spelling out the rights and obligations of parties, terms and conditions including that for termination, and the validity period.  The agreement is drawn up by the franchisor’s lawyer.  A potential franchisee should consult people who are knowledgeable on such agreements to go through the details before signing it.

13

What is meant by Working Capital?
Franchise must set aside sufficient funds as working capital to pay for normal business overheads e.g. utility bills, salaries and purchase of goods and services.  Although most franchisors do provide credit terms for the goods and services provided, this only defers the payment.  When the time arrives franchisees will still need to pay up.

14

Payment Terms
Goods and services provided by the franchisor to the franchisee have to be paid for.  The period by which franchisees are given to pay up is specified by the franchisor under the payment terms.
Supply of goods and services Franchisors usually specify that a certain minimum percentage of good and services needed by the franchisee must be obtained from them.  It is not uncommon for franchisors to insist on the figure being 100% as they want to ensure the quality of the foods and services provided.

15

Compliance with contract
Franchisee arte required to comply with the terms and conditions of the franchise agreement.  This is to ensure that franchisees do not conduct themselves in manner that affects the image and business of other franchisees.  Franchisors have the right to terminate the franchise agreement in the case of franchisees who after repeated warnings, fail to comply.  On the other hand, if the franchisor does not abide with the terms spelt out in the franchise agreement, the franchisee can also seek legal redress.

16

Can the Franchisor guarantee the Franchisee a profit?
Franchisee sometimes appears to believe that franchisors have guaranteed them a profit.  In and of itself, franchising hardly guarantees the profit.  Unless the franchise is run by entrepreneurs who are allowed to manage their business under acceptable guidelines with a keen eye for profits, franchisees may not be successful.

17

What is the biggest benefit received by the Franchisees?
Perhaps the biggest benefit received by franchisees is the extensive assistance provided by franchisors.  In exchange for start up fees, established franchised systems offer proven products or concepts, recognizable images that create instant credibility and market acceptance, and time-tested business procedures.  Many franchise packages include standardized methods for operations, promotion, site selection analysis, accounting and finance and personnel training.

18

Which is the best advantage that franchising has over independent small business?
Franchisees are never alone, which is one of the best benefits that one could hope for ion this tough business world.  On one hand thy have the franchisor to support them and on the other they have franchisees that are having parallel business experiences.  Furthermore, as a franchise matures, the brand name and trademark becomes more valuable.  So as franchisees consolidated in the marketplace they are actually adding value to the group as a whole.  Similarly, as franchise grows in number, the multiplication of sites creates a stronger market presence, which benefits all franchisees.

19

Do franchised businesses have a better chance of success?
Surveys conclusively show a very strong success rate for franchise owners.  Whereas the failure rate for independent start-up businesses is approximately eight out of 10 (within five years of starting), franchising has the opposite ratio of success where more than nine out of 10 are still operating after five years.