Read this blog to understand how a business franchise works in India. Also, know the Relationship Between Franchisor and Franchisee
A business franchise is when an already established business (franchisor) offers the distribution of its products or services through affiliated dealers. If you wish to learn more about the topic, Relationship Between Franchisor and Franchisee we have you covered!
Franchising is the way to execute a business with the help of some or all components of another growing organisation. However, more recently, the concept of franchising has emerged, in which a firm licenses another company to operate under its brand and leverage the parent company’s knowledge to build a successful business. Domino’s Pizza and KFC Franchise India restaurants are two other well franchise businesses in the world. Also check Bata Franchise in India
A franchise system is one owned by an individual or a group of entrepreneurs that offers a product or service labeled by a corporation in exchange for a combination of a set fee and fees depending on profits or sales, as well as support in every element of the business.
We will look at how the franchising business operates in India in this article.
Relationship Between Franchisor and Franchisee
In exchange for an agreed price, the franchisor permits franchisees to function using the same goods or services, trademarks, procedures, and so on. A franchisor has several franchisees. There can only be one franchisor for a franchisee. The franchise agreement regulates the relationship between the franchisor and the franchisee.
What is a Franchise Agreement
Some of the primary aspects mentioned in a licensing agreement are as follows:
- Information on the franchisor and the franchisee
- Selection of a franchisee and issuance of a license
- The franchisee’s location
- Location building for franchisees
- Upkeep the franchisee’s location
- The franchisee may use proprietary marks or trademarks.
- The franchisor’s licenses or approvals that the franchisee must get and can use
- Operational guidelines
- High standards of excellence
- If applicable, training and help from the franchisor
- Factors to consider when approving a franchisee
- If applicable, a franchisee licencing fee
- Franchisor marketing support, if any
- Products or Services that the Franchisee can provide
- Obligations of the franchisee
- Responsibilities of the franchisor
- The franchise agreement’s terms
- The franchise agreement’s duration
- The franchise deal is being renewed
- The franchise agreement will be terminated.
Guidelines – Franchise Agreement
Franchisor Advantages
For both the franchisor and the franchisee, the franchising business strategy offers a variety of benefits. The following are the benefits of a franchising business model for a franchisor.
- Low-Cost Capital
Individual franchise owners often pay a franchising fee with no interest to low investment franchisors. The Franchisor can use the money received from franchisees to expand the business and brand.
- Rapid growth
In India, rapid expansion is required to get market share. The franchising business strategy can assist a company in expanding and gaining market share.
- Collaboration with Entrepreneurs
The franchisor joins with Entrepreneurs or Business Owners who are inspired by their equity, profits, and capital investment made in a franchising business strategy. This will be beneficial to the franchisee and the franchising model’s success.
- Developing a Brand
Franchisee businesses have a stronger reputation than independently operated enterprises because they have more locations. Because brand creation costs are shared among several businesses in a franchising business, there can be significant savings on advertising and branding.
Franchisee Advantages
Beginning a franchising business has a lot of advantages over starting an independent business. The following are some of the benefits of opening a franchise business for a franchisee:
- Expertise
The promoter does not need any prior knowledge or expertise to launch and maintain a franchised firm. The franchisor will give the necessary training and skills to run the business: https://www.mca.gov.in/MinistryV2/incorporation_company.html
- Increasing your chances of success
Due to a variety of factors, franchise businesses often have a greater success rate than independent businesses. Franchise firms enjoy the expertise of experienced professionals, fewer branding costs, stronger brand recognition, and other factors that increase their chances of success.
- Autonomy
A franchise business allows a business owner to run their own company while yet receiving many of the perks of a larger corporation.
- Access to capital is made easier.
Franchisors often have several banking relationships via which they might get financing to start a franchised firm. As a result, franchisees can get a bank loan through the franchisor.
Get aware of the Must Read Topic: Things need to know before starting a franchise?
Relationships between Franchisors and Franchisees
Franchise partnerships can be divided into two categories:
- Franchisor-franchisee relationships
- Franchisee-franchisor format
Franchising describes franchises in which the owner owns the right to a brand or trademark, which is then sold or licensed to franchisees; or Business Format describes franchises in which the owner owns the right to a trademark, which is then sold or licensed to franchisees.
The term “franchising” refers to a business connection between a franchisor and a franchisee wherein the franchisor offers services such as site location, training, business model, and other tools to the franchisee.
Varying states may have different definitions of a company franchise. Some states’ definitions include a marketing plan or a “community of interest” provision.
A Few Points to Remember
- The franchisor licenses the right to use its trade or service marks to the franchisee;
- These marks can be used to identify the franchisee’s business in promoting products and services using the franchisor’s mediating role;
- The franchisor offers support and maintains some level of control over the franchisee’s activities; and
- The franchisee pays the franchisor a fee.
- A license is required for every franchise, although not all licenses are franchises. The types of disclosures required may differ depending on how a business fulfills the governmental definition of a business franchise. However, because a contract is involved in both cases, these definitions have no impact on your rights when a conflict arises.
Franchise Agreements
Contracts between the franchisor and franchisees form the foundation of franchises. As a result, a franchisee can look to the contract’s text and the relevant jurisdiction’s contract laws to identify their rights and duties within the agreement.
Conclusion:-
Remember, many of the most important obligations between the franchisor and franchise are established in the licensing agreement, including the franchisor’s level of control over the franchisee, terms of procedure, skills required, trademark and copyright commitments, renewal, and termination options, and other key details. Hope you have now got a clear idea about business franchises.
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