Franchise

Author’s Name
Lecturer
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Franchise Business Model
Abstract
Franchise business model is one of the commercial strategies that has gained popularity in U.S and other parts of the world. This approach makes it possible for one to adapt to a competitive business environment as there exist already established brands and company names that markets the products. It has advantages that outweigh the disadvantages. It is therefore recommended to employ franchise model at the start of a business. Its success has been manifested in many places as discussed in the paper. Ideally it is the only pathway to acquire wealth to some of the entrepreneurs. The paper also reviews the relationship between the corporation and the franchise stores and further advice on which store is the best to start up the business. The article examined the payment in franchising and realized that the franchisors as the most beneficiaries of the outcome of this model.
INTRODUCTION
A franchise is a definite term that describes the type of license and long term corporation that exist between the two entities. These objects include the franchisor and a franchisee. In this situation, there is the explicit agreement in which the franchisor offers a licensed privilege to a franchisee to perform/operate the business under their name (Spinelli et al 134). What is important here is that the franchisor provides room/rights for the Franchisee to develop new concepts, use the trade marks/names and existing business processes or systems to produce and market goods and services and operate the entire business for a fee.

Notably, Franchising usually occurs when one develops a business model and in turn decides to sell the rights to work to another entrepreneur/ franchisee. In this context, the company selling the rights is a franchisor but the franchisee in turn gets access to the business models for a specified period and within a defined geographical region.
Franchise entrepreneur alliance makes it possible to exploit the company opportunity, especially in competitive business environment. The franchisor identifies an opportunity and eventually formulate the service delivery to use the given opportunity in a more peculiar way. Through this, the franchisor will hold a burden of researching on the market, formulating the business plan, and measure the current competition. Interestingly, the Franchisee is privileged to cultivate the customers and create awareness that will ensure the franchisors’ competitive advantages persist irrespective of the incremental changes (Ongenecker 145).
Trademarks form the bond that exist between the franchisor and franchisee. The two counterparts agrees to share the same ideology of maintaining and building the brand, and this will create a price value relationship amongst the targeted customers. The franchisor gets the name, and the Franchisee focuses on the day today selling process by bringing in the entrepreneurship drives.
History of Franchise business model: Globally, the United States in the first nation that leads in practicing franchise business and has built her reputation with the franchise business worldwide. The idea of franchise business can get traced back around mid-19th c. According to (Ongenecker 145), this practice followed the innovative work of Isaac Singer, who invented a sewing the machine. Singer wanted to distribute his machines to larger geographical areas hence opted to adopt the idea of the franchise business. Around 1930, Howard Johnson’s restaurant in U.S had approved the strategy that kept it abreast to a competitive marketing of fast food industry in U.S. Notably, until today the franchise business is responsible for a bigger percentage of Americas business and has stretched further to other parts of the world.
Pros and cons of franchise business: (Ongenecker 145-167), argues that there are numerous advantages as well as the drawbacks of this form of the enterprise. These are the tips that an entrepreneur should acknowledge even before purchasing a franchise or deciding to start their firms. In this case, each option will hold a particular benefit that ranges from cost to flexibility and even more. Lest one evaluates the pros and cons of the franchise business, no one can ever realize if it is the preferred strategy for the enterprise.
Advantages: Some of the outstanding benefits of franchising includes entrance to better talents, the current expansion of capital, and minimized growth risk (Kestenbaum, Harold and Adina, 108). Notably, franchising is an advantage to the franchisor since such individuals may get access to the qualified and talented personnel that only works towards bringing the customer into the business more than they would have done it. Kestenbaum, Harold and Adina (58), postulated that Franchising makes it possible to access the good and better-talented gurus that in turn work hard to bring more customers into the business than the owner could have done. This strategy also ensures the natural/easy expansion of capital. For instance, the Franchisee will always pay to buy the outlets of the business holder.
In this context, the franchisor will be prevented from tapping more capital in the company and eventually one can grow the number of business locations. (Ongenecker 156), adds that the strategy also minimizes the growth risk by just generating high financial returns for little or no risk at all. This approach is advantageous since when an individual franchise they use the little money and adds the business location. In return, the amount of profit from numerous locations will be more than one could have earned themselves.
Spinelli et al (132-134), proposed that another important advantage of this strategy gets attributed to conventional trade operation. Franchise business operates under the company formula that includes well-established products and brand recognition as well as employee’s uniform and services. The franchisor company will also offer the financial planning and training with approved suppliers. According to Kestenbaum, Harold and Adina (123), to some extent, this is an advantage to the Franchisee since the franchisor will offer the training and support required.
Cons of franchise business model: Buchan (4-27), projected that some cons offset the pros mentioned above. Some of these disadvantages are minimal control over managers, innovation challenges, and substantial startup capital. For instance, taking into account the MacDonald’s restaurant that has faced comparatively unprecedented challenges that make it almost impossible to employ innovative practices efficiently in their outlets. New ideas are first discussed by the franchisor and the franchisee after which they may decide to use them or not. If the franchisee does not accept the new ideas, then business will suffer from innovation challenges. Additionally, Buchan (38), posit that there is also lesser cost experienced over the managers. For instance, as a business holder one cannot suggest for the franchisees what to do something a manager can always tell their employees.
Franchisees are known as independent companies that always possess various goals from the franchisors. The different in business objectives/goals can always conflict each other hence requires certain legal precepts to take control. Franchisors are geared towards making the profit out of sales as royalty for allowing the franchisees to operate with their brand names and business system. On the other hand, franchisees always make the profits through the outlets earnings. Therefore, a concept that gets geared towards boosting sales and not profit will result in a conflict between the two (Ongenecker 145). Management of the outlets may be hectic since the Franchisee may employ certain strategies that will only boost the sales but not the profitability of the business like the application of customer promotional vouchers.
It is, therefore, advisable that before an individual decides to either venture in his own business or to adopt franchising the factor listed above should get gauged so as to evaluate the effects of the model and start up business (Spinelli et al 123-138). It should get noted that franchising is not guarantee or silver bullet for an enterprise expansion so one should gauge the advantages and disadvantages to evaluate which facets outweighs the other.
However, Spinelli et al., (134) suggest that if one wants to start the business especially in the regions prone to the competitive market condition, a franchise is portrayed to be the best option. This strategy is unlike starting one’s own business because of various advantages some of which significance get listed above. One of the outstanding advantages that drives the entrepreneurs to seek franchise business on their own is the fact that they will benefit from already established company’s brand name. This benefit implies that an entrepreneur will not struggle to market the new products and spend a lot of resources to sell the products to the consumers (Kestenbaum, Harold and Adina 89)
Many scholars have postulated that franchising is the leeway to the creation of wealth. Other than that, it provides the entrepreneur with ample opportunity to exploit that gap in that market which has been previously avoided and underserved.
Comparison between a franchise and a corporate business: Mainly contemporary chain restaurants, retails and stores are operated as franchises business. This concept means that the parents company allows the local owners to use the company’s names and products. Conversely, a franchise can also be owned by corporations, Limited Liability Company or any other related business structure (Spinelli et al 134). Some rifts differentiate the franchise and corporation stores. Therefore, one should acknowledge that Corporation is a type of a business structure that can own a franchise firm under certain specified agreements.
Corporations provide the liability security/protection for its shareholders. They regularly hold a meeting with its shareholders and keeps an official record as required by the state precepts (Ongenecker 102- 145). Franchise arrangement is where the company or a person buys the liability to run a bigger firm under the first companies brand and name. The difference between the two stores is that corporation involves purchasing and financing the whole operation while franchise only finances the startup capital that includes the planning cost and filling in authorized documents. Once the franchise gets set up the cost of opening other outlets depends with the Franchisee.
The Franchisee in return pays the franchisors the loyalty fees, hires workers, and manages the firm with the stipulated policies and agreement formerly made between the two. Entrepreneurs are therefore advised to evaluate the difference and comparison between the franchise and corporate stores critically before they set up their businesses. The evaluation will depend on factors such as location, policies and procedures. The only advantage that a corporate store holds a franchise is that in the case of any new change within the firm the owner has the freedom of making changes whenever the need may be. Unlike franchise business model, this is not possible and will ways attract conflict between the two.
Existing major Franchise businesses: The following are some of the existing and successful franchise companies that have prevailed over the last decades. These includes the McDonald’s (MCD), Pizza Hut (YUM), Denny’s(DENN) ,Subway, Jack, Chain hotel industry such as Day’s Inn, Hampton and Dunking Donuts. Considering the secrets revealed by Subway, Starbucks, and Pizza Hut about their success in the franchise business, one can gauge the numerous advantages of the franchising model that is most effective in a competitive business environment (Kestenbaum, Harold and Adina 58).
The above franchise business firms testified that every individual must eat and hence launching a franchise business in the restaurant industry advantageous. They are very prime examples that one can focus on in the production of the fast food industry. They usually employ clever marketing strategies and adequate brand management that allow them to make their products their creations. For sure, when launching a franchise business, Subway, Starbucks, and Pizza Hut are the prime examples that one should admire.
Rate of making money: Franchise model of business always seem simple for instance, companies like Macdonald, Supercuts, and Any Time Fitness are always willing to open an outlet for any ambitious person that dreams of running one. In exchange, the franchisors get the startup fees and “cut of the till” that varies from 3% to 10% of the gross sale made by the franchisee. The percentage of making payment with the franchise model depends on the factors like the location and the customers’ preference.
Franchisors make the profit by manufacturing the “must have products” to the Franchisee. They achieve this through hindering the business owner to realize how much the makeups may cost (Ongenecker 89-145). They thereby take advantage of the Franchisee, and this is common with most fast food industries like the sandwich shop Quiznos that have many locations and always get some profits from the product purchased from them. Another income regeneration of the franchisors is the add-on fees. This fee is meant to pay for an additional cost of the operation. McDonalds being one of the successful franchises usually charges its Franchisee a fee of more than 4% of the total sales.
Significance of the research topic: It gets clearly explained that franchise business model has outstanding benefits to both the franchisor and franchisee companies. Key benefits have attributed the subject of study than the disadvantages. The paper, therefore, recommends that any interested entrepreneurial person that wants to venture in business should go for franchise model rather than starting their firms. The knowledge of franchising is seen as the best pathway to accumulate more wealth. It has affected the global business market by reducing the risks that new entrepreneurs encounter.
Conclusion: Conclusively, it is shown that most of franchise business do not finance. It is the franchisee to generate capital to help start up the firm. Also important is the fact that the agreement made between the two should be embraced at all cost lest termination of the contract will result. The concept has proved to have worked well in the competitive business environment as the marketing becomes comfortable with established brands and company name. One should, therefore, gauge the pros and cons before deciding to start their own business or employ franchise model. This aspect will depend on an individuals expected opportunity to get exploited and the region of the enterprise. Ideally, this model should be embraced as it is the cheap and easy way to accumulate wealth.

Works cited
Buchan, Jenny. Franchisees As Consumers: Benchmarks, Perspectives and Consequences. New York, NY: Springer, 2013. Internet resource.
Kestenbaum, Harold, and Adina M. Genn. So You Want to Franchise Your Business. Irvine, Calif.: Entrepreneur, 2008. Print.
Ongenecker, Justin G. Small Business Management: Launching and Growing Entrepreneurial Ventures. Mason, OH: South-Western Cengage Learning, 2012. Print.
Spinelli, Stephen, Robert Rosenberg, and Sue Birley. Franchising: Pathway to Wealth Creation. London: FT Prentice Hall, 2004. Print.