Franchising is practiced in many business establishments today. With franchising, the franchisor generally licenses its trademarks and business modus operandi to the franchisee. This is done in exchange of a recurring payment from the franchisee which may be a percentage of gross sales or gross profits and annual fees. Businesses working as franchise arrangement are referred to as chain store, franchise or franchise outlet.
The advantage of franchising lies in the fact that the franchisor is still in command of the financial part of the business. The franchisee only pays the franchising fees and other commitments while the assets are controlled by the company. Moreover, with franchising, the franchisor provides trained employees for the franchise. In fact, if required, they will also provide the necessary training to the employees, wherein the franchisees save in training costs.
When entering into a franchise agreement, it is necessary for the franchisee to pay some capital amount as security deposit to the franchisor. With this payment, the franchisee runs the franchise with the needed dedication as they will not want to lose the capital sum to the franchisor. As the company would have already had a good standing in the market, and allots franchises just to expand, there is not much of a hassle in getting customers, and business to the franchise.
Franchising helps in the growth of a business as there are no limits to the number of franchises to a company. It is in fact much easier to open franchises of a company, than branches of a business as the cost involved is much lower. Moreover, the franchise receives franchise fee, franchise royalty, better lease options, discounts on equipment and raw materials and discounts from vendors. So they basically have more money to run the franchise than an individually owned company or companies.