Discover the basic elements of how a franchise works and the benefits it brings!
Have you ever noticed that there are certain phrases or terms that are thrown around frequently at business meetings or at dinner parties that very few people truly understand. Many of us assume that we are the only ones in the room that don’t grasp the finer details of the subject in question, when in reality, the majority of the population doesn’t fully understand the general concept.
Some current examples may be bitcoin, blockchain, or search engine optimization. There are also some classic examples such as escrow accounts, stock derivatives and franchises. Yes, we all have used or heard the word franchise in a business or personal setting, but do you really know how a franchise works? What are the legal permaniters? How does a franchise owner make money? Can you do whatever you wish with a franchise location? Do you own it?
Just like anything else, the franchising model may seem a little complicated at first but if it is broken down into it’s fundamental elements, it is actually very straightforward- and profitable.
The Basic Definition of a Franchise
A franchise is essentially an agreement where the owner of a trademark(s) and a proven business model allows another to use those same trademarks and models in exchange for a recurring payment, a fixed fee, or a percentage of the gross sales.
The owner or the company that is licensing the business methods and trademarks is know as the franchisor. In the franchising agreements that we enter into, Joey’s is the franchisor. The individual who has decided to use the business model in exchange for a fee is the franchisee, who we will call Danielle.
Danielle would then open a clone of a Joey’s restaurant and run the establishment with the continual support of Joey’s head office for a predetermined amount of time, benefitting from the profits earned outside of costs and franchise fees.
What’s the Difference Between Starting a Franchise vs Starting Your Own Business?
When you decide to take the leap of faith and become a business owner, you are venturing into the unknown. Every decision is undetermined and must be decided by you as the owner. There is no guide or plan, you have the freedom to operate as you please. All the costs and the risks fall on your shoulders which is why about 80% of all independent businesses that are started fail within the first year of operation.
In our example from above, when Danielle decides to enter into a franchise agreement with Joey’s, she will be provided a business blueprint, or step-by-step guide to setting up her new restaurant and the team that will run it. She will have to follow specific rules but she will also have all of the details of the operation provided to her including approved marketing materials, signage, business hours, etc.
So what is the biggest difference between the solo entrepreneur and Danielle, our newest Joey’s franchisee? Danielle is utilizing and building upon the proven success of Joey’s model and brand while the entrepreneur is risking at least an 80% risk of failure with an unproven idea.
A Franchise Analogy
Here is a different way to think about a franchise agreement. Let’s say you are really interested in delivering supplies in your city. Becoming a franchisee is like renting a car to complete that task. You know the rental car is in working condition and that it is still efficient if it is in the rental lineup. If anything goes wrong with the car, the rental company will help to solve your issue. Renting a car is a straightforward process, where you only have to follow a few simple steps and you are in business delivering your materials.
Deciding to start your own business is like building your own car. You know you need a car to start your delivery services but you may not be a car expert. You have witnessed people building cars before and you have seen them everyday on the street but you are not sure where to start when it comes to the mechanical details. There is no one there to hold your hand- building the car is in your hands alone.
What are the Main Benefits of Starting a Franchise?
- An established and trusted brand and business model
- Monetary rewards are directly related to your efforts
- Assistance and training from head office
- Indirectly benefit from advertising from other locations
- Less risk
At the end of the day, if you partner with the right franchise group, you will greatly reduce your risk with a proven formula for results and revenues. With a Joey’s franchise, you can have your business up and running quickly with very few unknowns which means you will become profitable sooner.
Have you always wanted to run your own business but want to minimize the risk?