Franchising

A franchise, also referred to as franchising, is a method of selling goods or services that involves
a franchisor who creates the brand's trade name and business model and a franchisee who pays a
royalty and frequently an upfront fee to have the right to use the franchisor's name and system.
The term "franchise" technically refers to the agreement that binds the two parties, but it is more
frequently used to describe the business that the franchisee runs. The process of developing and
disseminating a brand and franchise network is known as franchising.1

Two types of franchising models

 In a business format franchise, the franchisor not only offers its trade name, goods, and
services to the franchisee, but also a full system for running the business. The franchisor
often provides the franchisee with assistance with site selection and development,
operational manuals, training, brand standards, quality control, a marketing plan, and
business consulting support. Example is fast food industry such as KFC2

 Product and trade name, wherein the franchisee sells the franchisor's goods under the
franchisor's brand name or trademark. Automobile dealers, companies that bottle soft
drinks, and gas stations frequently use this style of franchising.3

Why should one choose a franchise over a startup?

A franchise permits one to acquire a tried company with a well-known brand and target market.
Due to vested interests, the franchisor will continue to be interested in the franchisee's business
operations. This implies that one will also receive assistance and expertise from someone who
has already completed the task at hand. It has several advantages over going it alone as one will
be working with other franchisees, and they may provide one with a lot of support and
assistance. In terms of money, one is provided a very accurate estimate of both the capital
investment and the monthly cost. Private businesses frequently have unanticipated hidden costs.

Points to consider before acquiring a franchise

1
International franchise association
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  Does the business own a well-known brand that the general public can easily recognize?
Will you, for instance, sell Coke or Coak? Even if it tastes the same and may even sound
the same, it is not, legally. You need to be very careful because not only will the public
not trust your product, but it also violates the law on trade marks.4
 Do the franchisors—the folks who are selling you the franchise—have a track record of
success? To avoid having your money stolen, ask a qualified accountant to confirm the
accuracy of their accounting books.5
 Verify that you will receive the support and service they guarantee. Ask inquiries about
how the franchise is doing by getting in touch with people who have already purchased
the same franchise as you. Find out if they are profitable, receiving the support and
service they were promised, and earning a profit.6
 Thoroughly go over the franchise contract. It is advised that you speak with a lawyer
experienced with franchise agreements. Verify that the royalties you will be required to
pay the franchisor are reasonable.7

Advantages of franchise system

To the franchisee

 A whole business system, including designs, decor, stock, recipes, management, and
other practices, may be acquired by the franchisee. The specific package will vary
depending on the franchise business, with the more advanced ones typically favoring
franchisees without prior expertise so they can be trained from scratch.
 The franchisee is integrated into a huge company system, reaping all the rewards of
the franchisor's good name, business growth, and other advantages.
 Because the franchisee outlet is an independent business unit, it can benefit from
small business advantages like better customer service, quicker customer responses,
greater flexibility and better change management, the ability to take advantage of
local opportunities, and higher employee morale.

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WIPO-KEPSA/IP/NBO/06/

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WIPO-KEPSA/IP/NBO/06/
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To the franchisor

 The network's expansion is made possible by the franchisee's financial and human
resources.
 The franchisor is unconcerned with how each location is run on a daily basis.
 The franchisor's organization is lean and capable of making money without taking on
significant financial risk.
 The network has the potential to expand quickly.
 The franchisor has fewer employees and fewer employee issues.
 The owner of each location oversees operations, and they typically have a strong sense of
motivation to succeed.
 It offers more extensive and safe outlets for goods and services.