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How Does Franchising Work Exactly?

By Brown Ezilon.com Articles Published 11/6/2010 | Franchising

What is franchising exactly and how can it work for you?

Franchising is basically a means to distribute services and goods and implies an agreement between the franchisee and the franchisor. A franchised business revolves around the concept or idea of the products to distribute and not the actual distribution.

In a franchising business venture the franchisor is legally the owner of the ideas and concepts of the agreement and can grants other businesses to use these concepts, while the franchisee is the company who buys the rights to use these concepts for marketing their products. What the franchisee is actually doing is buying ideas that will allow him to sell his products or services on a wider scale.

When a franchisee realizes that a certain concept or marketing idea is very successful he may decide to purchase the franchisors concept and pays a franchise fee, in order to purchase the right to run his business with this concept.

Basically, the franchisee is purchasing the franchisors know-how in marketing strategies and advertising, for he has proven to be successful. The franchisor benefits from this exchange for he is making money with another companys services or products.

If you are planning to expand and improve your business, buying a franchise can be a good solution, although it can be hard work initially for you need to make sure problems do not arise in the future. These can pop up once the franchise contract has expired. If you as a franchisee offer your concepts to the franchisor and then after four or five years the contract ends, the franchisor remains the owner of the product and services you have helped expand.

You might also start wondering whether you could operate your own business and make a profit from your own concepts instead of offering it to others. While a franchising agreement is a great means to expand and develop a company, often the relationships between the franchisor and franchisee are difficult.

First of all the franchisee has a time limit and profit to what the franchisors company can offer due to the time limit the contract establishes. Once he feels his company is successful the franchisor will often not bother to renew the contract with a franchisee, who in turn feels that if it was not for his concept the company would not have evolved so well in terms of profit.

The positive side is that if you as a franchisee are successful your value on the market will increase, therefore so will the demand for your concepts. The negative aspect is that you will then be paid an under-valued share for the services you are sharing with the franchisor you have already stipulated a contract with.

If you do want to start a franchising, ask yourself a few of several questions:

         What kind of business do you prefer?

         Which businesses are going strong now?

         Are there any offers of franchising agreements in your market niche?

         Will they be successful and can you afford them?

Making the right choice can really make a difference to your business.