Franchise Ownership: Definition, Types, Pros, and Cons

Everyone is trying to hustle this 2023. With increasing demands in particular industries, some want to experience entrepreneurial freedom by catering to this demand. However, many people know the challenges and process of building a business from scratch. And this is why they turn to franchising as the next best option. But what is franchise ownership? Let’s dig in and learn about what it is, the franchising types, and some pros and cons. 

What is Franchise Ownership?

Franchise ownership, or simply “franchise,” describes the license to operate a business’s trade or service mark. The owner of the franchise, the “franchisor,” allows entrepreneurs who wish to buy a franchise, the “franchisee,” to operate a business with agreement limitations. 

The franchisee pays the franchisor a franchise and/or royalty fee to operate the brand name. According to the franchisor’s guidelines, the franchisee then distributes products or renders services to customers. All these rules and requirements will be stipulated in the franchise agreement. 

In this relationship, a franchisor controls how the franchisee operates the brand. For instance, the franchisee or franchise owner must maintain the same store layout, distribute only approved products and services, and uphold the same branding and identity that the franchisor has preserved for years. 

The purpose of having this control benefits both the franchisor and franchisee. By implementing these means, all franchisees follow specific requirements in running each franchise. This means customers will enjoy the same branding consistency and quality from every store, maintaining a good reputation that will attract more customers.

As a franchisor and franchisee, you want to show customers a level of service beyond franchising. It’s all about maintaining and nurturing relationships with customers. Moreover, the success of franchises will also work if an excellent franchisor-franchisee relationship is evident. 

Franchise ownership dwells around communication, support, and systems. Once franchisees buy a franchise from the franchisor, they work and collaborate with them for the entire franchise duration. Additionally, the franchisor deploys systems to meet brand values, vision, and mission. The franchisor conducts initial training programs and subsequent training sessions as needed. 

Finally, the franchisor offers support to all franchisees in operating the franchise. However, the franchisee and its team are responsible for running the franchise’s day-to-day operations. 

Some of the things franchisors do to help franchisees are:

• Allow franchisees to operate using the franchise’s brand name
• Help franchisees choose a location and offer guidance in site development
• Provide training for the franchise owner and management team
• Offer support from the headquarters
• Help discover and research new products and services
• Help with marketing and advertising

3 Most Common Types of Franchise Agreements

You’ll find many franchise agreement types and business models out there. However, the most common ones are:

• Business franchise. The most common franchise structure, this type allows franchisees to operate the franchisor’s trademarks in exchange for a franchise fee or sales percentage. 
• Product franchise. One of the oldest agreements, this type lets franchisees sell products according to franchisor guidelines. 
• Manufacturing franchise. This agreement type gives franchisees the right to manufacture products and has exclusive rights to distribute them using the brand’s trade and service mark.

Pros and Cons of Franchising

Before buying the first low-investment franchise you can find, it’s essential to look into the pros and cons of franchising. As a responsible business owner, it’s your job to weigh the advantages and disadvantages and see if this business model is suitable for you. 

Pros:

• Turnkey business. Buying a franchise means operating a turnkey business that doesn’t require too much brand awareness efforts and establishment. Depending on the franchise’s popularity, you’ll run a company with an already established customer base. 
• Low risks. Most entrepreneurs prefer franchising because of its low risks. There is minimal chance of failure, especially if franchisors maintain good relationships with franchisees. On the other hand, if the franchise agreement is implemented accordingly, franchise failure is unlikely.
• Extensive network. If the franchise you choose has decades of proven track record, you’ll gain an extensive network while running the business. You get support from the franchisor and would even be connected to their network. This means better revenue and partnership opportunities for you. 
• Business assistance. One of the reasons why people prefer franchising over starting anew is due to systems in place and franchisor support. In some cases, franchisors even help out with marketing and advertising. 

Cons:

• Limited business operations. Since franchisors gain control over business operations, franchisees will adhere to restricting regulations. Some are the operating hours, product pricing, store layout, marketing collateral, decor, etc. 
• Costly. Some franchises might come with hefty franchise and royalty fees. In some cases, the franchisees might be unable to sustain this, especially if the business isn’t doing well as the other branches.
• No financial privacy. Another disadvantage of buying a franchise is the lack of financial privacy. The franchisor would usually require account transparency since some agreements implement sales percentages.
• High conflict risks. Franchisees can’t operate some business aspects differently, which could cause conflict between them and franchisors. As a franchisee, you will be at the mercy of franchisor regulations, impeding freedom in expanding the business further. 

Conclusion

Buying a franchise is a surefire way of gaining entrepreneurial freedom. However, some of these disadvantages might not suit you. That said, it’s crucial to check out each agreement’s regulations. Whether you’re buying a fitness or business consulting franchise, scrutinizing the franchise agreement is vital to success.