The concept is not complicated. When these criteria meet, you have a franchise concept. For those entrepreneurs wondering how franchise works, have these considerations into account.
- You allowed someone to use your brand
- You authorized a person or company to use your system or business platform
- Your received payment of a fee at the signing the contract, payments for sales, royalty, as well as contribution for the marketing promotional program.
Don’t get confused by selling licenses. The licensee pays an initial fee and a price for each item sold. The licensor usually has less control over the people or company promoting the product. When you franchise your business, you receive the payment for the right to use your brand name and system of operation. You will have to train them on how to use the business platform and provide consistent assistance. The new franchisee will work at least 2 – 4 weeks in a designated facility at his or her own cost and invest in all the capital needed it to duplicate your system. This most probably will include buying the land or space, building expenses, equipment, inventory, state licenses, insurances, etc. Franchisees need to have enough start up money to cover for the next 6 -12 months operational expenses, these will vary depending the nature of the business.
My experience with franchisees is to teach them every detail; even those, which may seem insignificant such as what type of garbage bag, need to use as to teach them to maximize their POS or prepare the best empanada ever. Among the benefits of working under a franchise system, besides the proven system, is the marketing support, brand awareness, purchasing power and information provided by constant training. The Advertising fees from franchisees should be kept in specific account and use only for that purpose. Usually the franchisor (You) will prepare a detail report on how these funds were allocated. The main objective for a franchisor is to create value for everyone.
To have a network of franchises producing revenues to return a profit on the licensing, technology, system support and training. The franchisee needs also benefit in having his or her investment returned ASAP and securing the American Dream.
