Hi. Welcome to another episode of All About Franchising. So, today we are going to take a little bit of a step back and we are just going to talk about what exactly is franchising. Well, the simple definition is just paying someone to teach you a business, they already have experience and skills in. That is a pretty basic idea, most people can understand.
Now, there is more of a book type explanation of it or definition. And that would be, a franchise is a type of license that grants a franchisee access to the franchisors proprietary business knowledge processes and trademarks, thus allowing the franchisee to sell a product or service under the franchisors business name in exchange for acquiring a franchise.
The franchisee usually pays the franchisor an initial setup fee and annual licensing fees. So, I think between those two definitions, it makes common sense, and most people can understand that. As we look at it a little bit further, typically you are going to have an initial set up when you are coming into the business. They are giving you all the infrastructure, what equipment to buy, what type of location, do you need vehicles and marketing and advertising, grand opening signage, all these basic things to set up the business and you are going to pay an initial fee for that.
And then a lot of times there’s ongoing fees or for continuing assistance. So, as things change or you grow, they are there to assist you and help you along the way and you are going to pay monthly fees as they assist. Now, some folks might think, well, what do I really need them from after I get kind of out of the gate, and I am running the business?
Well, there are a lot of big advantages that you will continue to garner from a franchise if done properly. So, we can talk about a few of those initially and ongoing. Obviously, being part of a franchise eliminates a lot of the unknown, you have a partner in business, somebody you can lean on an exchange ideas with, and you will have some buying power.
So, if you are in the business longer and you are running a big unit, you will have the opportunity to buy from the company vendors at a discount typically, and also be getting better service. And something a lot of times people do not think about is higher sale value as well. Many franchise franchise units will sell at a higher multiplier than what an independent business would sell at.
So, those are some of the benefits of franchising.
Now franchising has changed a little bit from the past. In the past most brands were in business for quite a long time before they ever decided to teach the business to someone else. But now it is not unusual for businesses to franchise just off a concept or having just a couple of units and then franchise the business earlier in the process. Because of the infrastructure in the franchise industry now, that is a fine option as well. So, whether you are looking for a very well-established franchise or more of a startup brand will depend on, your risk aversion or what you are looking for- either one can be a good option. So, that is the basis of what a franchise is. If you have any questions, please feel free to put comments below.
Certainly. Any other topics you would like to hear about, always let us know. And we appreciate you joining us again for another episode in all about franchising.
