Updated: Dec 31, 2021
We can define franchise as a process of sharing services or products in which a franchisor (a person or group of people who creates a brand's name or trademark and a business system) and a franchisee (someone who pays the initial fee or royalty for the right to operate the business under the franchisor’s system).
At the point when you buy a franchise, you will have to pay a fee to become a franchisee. As a franchisee, you will have to sign an agreement with the franchisor which in turn gives you an opportunity to open a section under its business. The franchisor will also provide the tools and materials needed to run your business.
Immediately your payment is confirmed, you will be given your license to own, work, and make a profit with the franchise. Contract documents called a franchise agreement are also to be signed. This document tells you the terms of a contract with the franchisor. You must agree to the obligations, responsibilities, and controls of the franchisor and also as a franchise business owner.
Listed below is a breakdown structure of how a franchise works:
Franchise fees: it’s quite expensive to start a franchise. We have some cost you will have to pay which includes:
1. Franchise fee: this is a one-time start fee that always ranges from $10,000 -$50,000. It depends on the type of franchise.
2. Advertising fees: This fee is always around 1% -3% of the monthly gross sale. But, not all franchises charge an advertising fee.
3. Royalty fee: This depends on the terms of the agreement with the franchise. It’s to be paid on a monthly or quarterly depending on your gross sale and it also depends on franchise industries.
4· Franchisor Controls: this is an agreement document. As a franchisee, you will need to sign these agreement documents and this will dictate what, when, where and how to conduct the business. Let’s go through some of the contractual controls stipulated by a franchisor:
1. Method of operation: The business hours, where to get goods and products, how the business works are all dictated by the franchise
2. Design and logo: The franchise logo and design must also be the same with other locations and also if the design is outdated, you will have to pay for repair.
3. Franchise location: A well-researched survey is conducted to ensure that a particular location is suitable for the business
4. Goods and services sold: the goods and services to be sold will also be determined by the franchisor.
• Contractual obligations
The franchise agreement will also stipulate your time in the contract. Note. The franchisor may decide to terminate your contract if you go against some rules. Here are some things you need to know:
• Termination: The brand owner (franchisor) may decide to terminate your contract with it for numerous reasons. For instance, you don’t meet up with the set performance of the business or you or you didn’t pay up some of the franchise fees.
• Renewal: when your contract expires, you have the opportunity to also renew your business. This is referred to as the franchisor’s call. Provided they decide to renew your business, they possess the right to change the terms of the contract.
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