ONE of the most difficult experiences for many small businesses is how to sustain their operations or even grow bigger.
Some
have the financial muscle and prefer to grow organically. Others prefer to buy
off an existing business to reform and watch it grow.
But
both options have their severe downsides, and therefore, may not be the best
for them to consider. This is why franchising has been deemed to be one of the
‘easy’ ways out, albeit with some strict obligations.
Before I delve into why small business
owners can consider the franchising option, I wish to first attempt a
definition of franchising.
Franchising
is a system of distribution in which semi-independent business owners
(franchisees) pay fees and royalties to a parent company (franchisor) in return
for the right to become identified with its trademark to sell its products or
services. Under this form of arrangement, the franchisee is also required to
use the franchisor’s business format and system.
In
this first part of the topic, I will consider the franchising options available
for small business owners to explore.
Types of franchising
Trade
name or business format franchise - This type of franchise involves a brand
name. Here the franchisee buys the right to use the franchisor’s trade name
without distributing products exclusively under the franchisor’s name. This
very common type of franchising facilitates the expansion of the franchisor’s
business by allowing individuals to buy a business with an established brand
name. New business owners will often be supported throughout the initial
business stages and will continue to receive support in running their
businesses. In return for the offered support, access to experienced
professionals and the right to use the business name and trademarks, the new
business owner is obligated to pay a royalty fee to the franchisor regularly.
This
does not, however, mean that after buying the franchise name, one can do
anything one wishes. It comes with some strict rules that must be followed to
ensure that the brand name is not damaged.
For
instance, much as you may own the name, you will be required to pay regular
royalty fees. The parent company will provide you with ongoing support, the
right to use their brand name and any staff training materials you may need.
You are, however, obligated to buy all necessary supplies, such as stock and
uniforms, directly from them.
Product
distribution franchising or single operator franchises - Do you often hear some
companies say: “We are the sole distributor of …”. Product distribution
franchising is a type that involves a franchisor licensing a franchisee to sell
specific products under the franchisor’s brand name and trademark through a
selective, limited distribution network. Again, this model focuses on
individuals who are selling products or delivering a service in a specific
trade or industry field such as the automobile or the petroleum downstream
industry, among others.
Simply put, the franchisor will allow
you to use their brand name and trademarks, provide you with the uniform and
equipment needed to properly represent the brand and offer you ongoing support.
Note that product franchises are a great option for first-time business owners,
independent contractors and home businesses since the investment needed is
usually smaller than that of business format franchises.
This
is the earliest type of franchising. Under this, dealers were given the right
to distribute goods for a manufacturer. For this right, the dealer pays a fee
for the right to sell the trademarked goods of the producer.
For
a brief history, product franchising was used, perhaps for the first time, by
the Singer Corporation during the 1800s to distribute its sewing machines. This
practice subsequently became popular in the petroleum and automobile industries
also.
Comprehensive
franchising- The type involves providing the franchisee with a complete
business format, including a licence for a trade name, the products or service
to be sold, the physical plant, the methods of operation, marketing plan, a
quality control process, a two-way communication system and the necessary
business support services. In short, the franchisee purchases the right to use
all the elements of a fully integrated business operation.
While this type of franchise is the
most popular among food and drink companies, it can also be found throughout
the manufacturing industry, from children’s toys to cars.
The
best example of this will be a soft drinks company. The parent company will
produce the concentrated syrup and then sell it, as well as the right to use
its brand name and trademarks, to a bottling company. That company will then
mix the syrup with water and bottle the finished product before selling it to
various suppliers. For the automobile industry, the brand owner will
manufacture all the parts and send them to the franchisee to assemble for a
particular market.
Conclusion
So these are three options small
businesses can explore. If you would like to start your own business or become
self-employed, then buying an established franchise is a great place to start.
But
do not just do it. Speak with the right financial institution such as Access
Bank.
If
you also engage with an experienced franchisor to take care of customer support
and provide everything you need to get started, the only risk you have left to
take will be your initial investment.
Source: Graphic Online