BINAYAK ACADEMY,

Gandhi Nagar 1st Line, Near NCC Office, Berhampur

Contact No: 9776486185, 8270407323
FRANCHISING
It is that special right or freedom which is given by a producer to a particular individual
or a group of individuals to start the same business at a particular place being done by
the producer. This system is generally adopted by those producers who enjoy a lot of
goodwill. There are two parties in this type of agreement- one who grant the right is
known as FRANCHISER and the other person to whom the right is granted is known as
FRANCHISEE or FRANCHISE HOLDER.
There are a lot of companies who provide such franchise is Narulas, Haldi Ram,
Dominos, McDonald etc.

Features
1. Right to use the name: Under this agreement the right to use the name transfer to
the franchise holder.
2. Continuous control: Under this to maintain the reputation of business the
franchiser controls regularly the activities of the business.
3. Assistance to franchisee: The franchiser helps the franchisee by way of providing
training, technical help, advertising etc.
4. Separate business: Both parties business are separate from each other.
5. Periodical fees: A franchisee pays a fixed amount for a fixed period in consideration
to the right. It may also be in some other form.
6. Minimum agreement fees: The minimum time period for franchise agreement is
5yrs and after each 5 yrs the agreement has to be renewed. The franchiser can also
cancel the agreement with prior notice also.
7. Written agreements: The franchisee makes a written promise that he will not do
any rival business during the franchisee contract.

Advantages of Franchisee business

1. Franchising requires less capital than other growth methods: Franchising
permits your company to grow with capital invested by individual franchise
owners. For the majority of Fran Source clients, the investment required to
franchise their business is recouped through the sale of the first two to three
franchises.
2. Rapid expansion: In todays marketplace, the window of opportunity for a new
or unique business concept closes very quickly. Franchising permits multiple units
to be opened simultaneously, gaining a foothold over would-be competitors.
3. Market dominance: Multiple locations increase the companys competitive
advantage over similar type businesses.
4. Franchising puts a business owner in charge: Franchising ensures that
qualified managers are operating additional locations rather than employees. A
new business demands a great deal of time, effort and sacrifice. Franchisees are
motivated by their ownership of the business and the capital they have invested.
5. Franchise locations may operate better and more profitably than
company owned units: Once again, this is due to the fact that a highly
motivated owner is running the business rather than an employee. With their
capital at risk, franchisees are much more motivated then employees to perform
at their highest levels.
6. Greater buying power: Franchisors that purchase products and services for
their franchise network can often negotiate volume discounts from vendors and
suppliers. Sharing a portion of the saving with franchisees provides higher
operating margins and a competitive advantage over other similar businesses.
7. Increased name recognition: As additional locations are opened, name
recognition increases. In the United States, customer loyalty towards recognized
1

BINAYAK ACADEMY,
Gandhi Nagar 1st Line, Near NCC Office, Berhampur
Contact No: 9776486185, 8270407323
brands is at an all-time high. Consumers typically feel more secure frequenting a
business they recognize by name. For the independent business person, it has
become difficult to compete against companies that have significant resources to
develop and promote their brand. Franchising permits an individual to benefit
from the collective power and growth of the franchise network, which in turn
leads to greater name recognition and competitive advantages for each
individual franchisee.
8. Increased advertising and marketing budget: Franchisees may be required
to contribute a percentage of their gross sales (or a set fee) to an advertising
fund administered by the franchisor. This enables the franchisor to advertise in
regional and/or national media for the benefit of the franchise network.

Disadvantages of franchising
Lack of independence

Inflexibility

Risk associated with the franchisors performance

1. Lack of independence
An important feature of franchising is that every aspect of the business format is
defined and each outlet is operated strictly in agreement with this format. Not everyone
would be happy to operate a business under such constraints and you must consider
how well you can accept this aspect of the franchising system when looking for a
franchise to buy.
a. Discipline: Buying (licensing) a franchise means working within a system in
which there is little freedom or scope to be creative. Almost every aspect of
operating the business is laid down in the manuals.
b. Franchisor Monitoring: Regular field staff monitoring visits are welcome
initially, but as time passes you will feel able to do your own trouble-shooting and
you may come to regard the franchisors interest as an intrusion - it is after all
your business.
c. Service Charges: At first these services are necessary and franchisees do not
mind paying for them. However as time goes on, if less use is made of the
franchisors services then franchisees can resent making the continuing
payments.
d. Reputation: Each franchisee affects the reputation of the whole system
depending on their performance and ability. In many franchises there is a wide
gulf in the quality of product or service between the best and the worst
franchisees. Thus any franchisee can harm the reputation of all outlets in the
chain, even internationally.
2. Inflexibility
Responding to the market: Franchising tends to be an inflexible method of doing
business as each franchisee is bound by the franchise contract to operate the business
format in a certain way. This can make it difficult for a franchisor to introduce changes
to the business format, refit outlets, or introduce new types of equipment. In some
franchises it can be difficult for a franchisee to respond to new competition or to a
change in the local market.
The job itself: What may seem an attractive challenge now could become boring after
a few years so it is important that you choose a franchise to buy in which you will enjoy
the work, or which has potential for growth.
3. Risk associated with franchisor performance
It is important to recognise that not all franchise businesses are soundly based or well
run. In signing the franchise agreement you are formally binding yourself to a particular
franchisor and it is, therefore, vital to select one which is competent and ethical.