For those of you who want to start a franchise business, the main thing you need to know is that the business system may be slightly different from a business that you run yourself.
There are several terms in franchising that you must understand. That way, you don’t misunderstand when deciding to buy or pay a franchise fee for a company or trademark.
The following is a more complete explanation of the franchise system and the benefits of this business for each party.
What is a Franchise?
A franchise is a business model used when a brand owner sells his ownership rights to the brand so that he can use the brand name and business model to other parties.
The parties involved in the franchise agreement are:
- Franchise owner or franchisor, namely the business owner who sells the right to trade using his name.
- The franchisee or franchisee is the person who buys the right to use the business name, brand and business model owned by the franchise owner.
Many people are interested in franchise businesses because they have a higher success rate than other start-up businesses.
Franchise Business System
As explained a little above, the franchise system can simply be explained like this:
- The franchisee applies for cooperation with the franchisor and is asked to pay a fee as an initial investment.
- Franchisors help franchisees to manage their business. This means that franchisees are required to apply the same standards or guidelines that have been set by the franchisor.
- Franchisees don’t need to bother thinking about production equipment, raw materials, recipes, and so on. Just run the business and try to keep sales increasing.
From this explanation, it can be concluded that the franchise system involves several key elements. Here is the list.
- Brand and business model. The franchisor must have a trademark and business model that is successful and has a good reputation in the market.
- Franchise agreement. The contents include details of the rights and obligations of each party, duration of the agreement, costs, and other aspects.
- Licenses and rights. After paying the franchise fee, the franchisee has the right to use the brand, operational system and support provided by the franchisor for a certain period of time, according to the agreement.
- Fees and royalties. There are two fees stipulated in the franchise agreement, namely: 1. Franchise fee or initial fee to purchase the right to open and run a business. 2. Royalty fee or fee that must be paid every month at a percentage of the franchisee’s overall income.
- Training and support. The franchisor will provide initial training and ongoing support to the franchisee. That way, franchisees can be helped to run the business successfully.
- Standardization. In a franchise system, the factors involved are standardization of business processes, products and services. This is done to ensure consistency across the network.
Also read: The Difference Between Franchises and Partnerships, From Definitions to Support
Business Benefits with a Franchise System
Running a franchise business can provide benefits for both parties, both the owner and the buyer. What are the benefits?
1. For Franchise Owners or Franchisors
- Get additional income. The franchisor will get additional income from the franchise fee paid at the start and also the monthly royalty fee.
- Accelerate business growth. Through a franchise business, franchisors can expand their business more quickly without having to spend large amounts of capital.
- Increase exposure and reputation. Due to having more franchise stores spread across various locations, the franchisor’s brand becomes more exposed so that its reputation in the eyes of consumers increases.
- It is easier to expand geographically. With a franchise system, franchisors can reach markets in a wider geography, without needing to manage each business unit directly.
- Reduce risk burden. Because each franchisee manages its own operations and finances, the risk burden borne by the franchisor is reduced.
- Increase operational efficiency. Standardizing operational processes for franchisees helps increase efficiency and consistency across the business network.
2. For Franchise Buyers or Franchisees
- Can start business quickly. Because there is already a system that can be used to run a business, you only need to train employees.
- Have professional work partners. You can be sure that the franchisor is a professional in their field so that the franchisee can gain a lot of knowledge in the business they run.
- Tak perlu repot-repot branding. Merek milik franchisor kemungkinan besar sudah dikenal masyarakat sehingga franchisee tidak perlu banyak usaha untuk branding.
- Get full support. From the franchisor, you will also get training and clear SOPs that help with operations and marketing matters.
- Get the benefits of promotional media. Franchisees don’t need to be confused about promotional media because usually the franchisor already has a marketing strategy for their brand.
- Financial management is mature. Because franchise businesses basically already have a clear system for financial matters, franchisees only need to be familiar with the system and understand it
- High success rate. It is easier for franchise businesses to achieve success because the franchise business system is mature and proven to be successful.
Also read: What are some examples of franchises in Indonesia? Learn about the costs involved and their types!
Tips for Managing a Franchise Business
Even though it has a high level of success, this does not mean that a franchise business can be run carelessly. Here are some tips to apply.
1. Don’t be tempted by cheap license package prices
It’s better to see all the detailed benefits of each business package provided. Don’t decide to buy it just because it offers an affordable price, but focus on reasonable business prospects and targets.
2. Have clear goals
Don’t do business just to fill your free time. Even though it is a franchise, make sure the business has clear goals. Set personal goals so that the business can continue to grow towards those goals.
3. Not in a hurry
Even though the franchise system is mature, it still takes time for the business to be truly stable and profitable. Enjoy the process and don’t rush to stop.
4. Proper Financial Planning
The franchisor must have provided a clear financial system. However, franchisees are also required to have clear and measurable business financial management and planning.
Only in this way will the franchise have a clear reference regarding the success or failure of this business.
To do this, you can use the Labamu application which has various features to help manage the franchise business you are running.
In this application there is a Report feature to create complete and easy to understand sales reports and a Debt Book to ensure debts and receivables are recorded clearly so that they do not interfere with smooth cash flow.
5. Have Business Insurance
Insurance for owned businesses will also bring many benefits in the future. In undesirable and unexpected conditions, insurance can cut the financial losses that arise.
That is a complete explanation of the franchise system that you must know before starting a business.
For ease of running a business, immediately download the Labamu application on Google Play or the App Store. Designed with complete advanced features, this application is ready to support the growth of every business.
