What is a franchise?

A franchise is the way to do business with the fastest worldwide growth.

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More than 600.000 franchised businesses are spread on the American continent, generating sales of more than one trillion USD. Over 40% of retail and services sales in the world are made by franchises. A new franchise is created somewhere in the world every 12 minutes. Clearly, the franchise is the success story of the XXIst century. Updated figures show the following situation:
USA - 800.000 franchised units
Canada - 30.000 franchised units
Japan - 290.000 franchised units
Australia - 50.000 franchised units
New Zealand - 14.000 franchised units
Europe - over 300.000 (according to a report by Franchise Europe which compiled a list obtained from over 5.000 franchises operating on the continent, with an estimated turnover of $ 200 billion. These figures show that Europe has a much greater potential, given that fact that Japan solely has 290.000 units.)
A franchise can be defined as "a business opportunity in which the owner of a service or of a brand (the franchisor) grants the rights to local distribute and / or sell the products and services to an individual (franchisee), receiving in return a fee or a royalty in accordance with the quality standards. "

The Franchise Law No. 52/28 August 1997 states that: "A franchise is a commercial system based on a continuous collaboration between individuals or legal entities, financially independent, by which a person, named the franchisor, grants another person, named the beneficiary, the right to operate or develop a business, a product, a technology or a service. "

The primary objective of almost every franchise is the use of the products and / or services of the providers (franchisors) by a third party (franchisees) and their subsequent sale to the final consumer. For the franchisor, the franchise allows the expansion of a proven and successful concept and a specific operating system for the development of multi-units, in multiple locations, that offers the same product or service. On the other hand, the franchisee has the opportunity to use products, proven services, successful operating methods, viable marketing, known trademarks and continuous support. Usually, these benefits are not available for the manager of a small and independent business, who can often sell the same product or service.

The franchise attracts both the franchisee`s and franchisor`s interest. The franchisor has access to growth opportunities by expanding the distribution system with quality products and services. The franchisee has the opportunity to succeed as a small business owner, thanks to the successful systems, operations, information, methods, marketing materials, experience and often the franchisor's valuable trademark.
Today, the most common form of franchise in the world is the franchising business format which offers an opportunity for an independent businessman. In this type of business, the franchisee receives in addition to the product or the service the franchisor's support. This implies help and assistance in finding the location, equipment, furniture, in the development project, bookkeeping, training procedures, marketing methods, advertising and support in the activity itself.

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The advantages of the franchise


When operating a franchise business, the franchisee has a number of benefits.

These benefits include:

An acknowledged product or service
Perhaps the most important advantage for a franchisee is buying or using an acknowledged service. Most of the time, the clients already know the name and the reputation carried by that service. This advantage is the most important one for the franchisee, because the franchisor spent massive amounts of money to maintain the public attention that service. Many franchisors spend large amounts of their advertising budget to make national campaigns by running television commercials and advertisements on a single page in newspapers and magazines. Even the small franchisors often use publications or electronic media and displays in stores to attract the customers in that area. The franchisor will often share the advertising costs with a local franchisee.

The initial training of the franchisees
A lot of training sessions of the franchisees begin with an initial period of several days or weeks, spent at a training location, usually near the franchisor company`s headquarters. The initial training of the franchisees includes all operational procedures used in the business plus marketing, advertising, promotion, bookkeeping, inventory control, management, insurance and human relationships. Most of the time, the initial training lasts from 3-4 days to three weeks. It includes all operations involved in the business and the necessary functions to operate the business, and / or management and accounting operations. Thanks to the initial intensive training of the franchisees, in many cases they do not need to have previous experience in that field. Some franchisors would rather their potential franchisees not have business experience in that field of activity, so that they can mould them.

Financial assistance
Usually, in the start-up phase of a business, an entrepreneur's fund resources are quite limited. The borrowing capacity of the entrepreneur is usually very limited. Building a relationship with a business franchise allows the aspiring franchisees to improve their ability to obtain financial assistance.

While many franchisors do not provide direct financial assistance to their franchisees, some of them do. Some franchisors allow their franchisees to buy fixed assets and equipment in an extended period of time. In addition, these franchisors can provide the franchisees, by leasing, land and / or office buildings necessary to start-up the business.

Marketing and management support
Consumers tend to use the services provided by the franchise companies for the brand, its decoration, logo or the quality they perceive deriving from the standardized product or service. A franchise allows you to get an acknowledge business, with a product and / or service identifiable by consumers. Probably one of the greatest benefits deriving from choosing to operate a business franchise is the chance to have access to the marketing and the image promotion made by the franchisor. Most franchisors promote their brand, excellently advertise and market it and focus their efforts on the brand awareness. With the help of the repeated use of advertisements, street banners and radio/ TV spots, many franchises succeed in maintaining their brand in the first positions in the consumers` minds. The franchisee gets the right to use the franchisor`s brand and name which they advertise at national level. Thus, the franchisee benefits from instant local recognition, as well as from the customers who travel from one area to another.

Also, the franchisor has developed a manual of standard operations and procedures that help the new franchisee learn how to successfully manage the business. The new franchisee learns how to manage a successful system and how to replicate that system on the local market. Such programs, however, do not ensure success. The franchisee may not have the necessary ambition, desire or perseverance. Generally, the system is strong enough to give each franchisee a chance to succeed, if they will too make the necessary efforts to succeed.

Quality control standards
Each franchisor imposes certain quality control standards. These standards allow the franchise system to offer a coherent and positive service, or to achieve product uniformity throughout the entire network. By developing and maintaining high standards, the franchisor makes a huge service. The franchisees appreciate high standards and learn that these quality standards of operations and activities are the main cause of success. The quality standards represent the image of a coherent management, ensure the profit, and increase employees` spirits who are proud of their work, thus allowing them to "feel" the benefit of teamwork. These standards, even if they might seem dictatorial, are useful for both the franchisor and the franchisee. Due to the fact that the franchisees learn to serve a meal in a courteous and efficient manner, in an attractive and comfortable atmosphere, they are more likely to attract and maintain a large number of clients, generating business benefits and increased profits, as well as higher fees for the franchisor.

Less capital required for business operation
Another great advantage for the franchisees is that, usually, the costs for the management of the business are smaller when starting up a new business. Most franchisees do not have to pay for creating the designs, because they are usually provided by the franchisor, for a certain amount of money. The new franchisees can also receive financial incentives (credit) from different suppliers, because they are a part of that franchise system, which an independent businessman would not get from his suppliers. The franchisees also benefit from the fact that they already know how the new unit must be decorated and hot to use the space, thus helping the franchisees to save the time and money they would otherwise have spent on preparing and decorating the location.

Development opportunities
Many new franchisors offer the franchisees the opportunity to extend their business, not only for the first unit, but also if they want to open and operate other franchised units. A territorial development franchise ensures zero competition from other franchisees or company-owned units in a particular geographic area. The "area developer" contract gives the franchisee the opportunity to develop new units in a given territory, for a certain period of time. The franchisee has the opportunity to create the first unit and let it grow, and expand with the help of his own system.

These advantages show that the franchise system is based on a relationship of mutual understanding and trust between the franchisor and the new franchisee. The franchisor knows that his company`s growth and profitability depend on the success of its franchisees. It is the franchisors` advantage to provide as many assistance and support services to the franchisees as they are able to.

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