You might think that a franchise and a partnership are the same thing. Even though they are somewhat similar, these two business models have quite significant differences, you know, your Profit Friends!
Both also have advantages and disadvantages that you need to consider. So, so that you know more about the differences between franchises and partnerships, let’s take a look at this article!
Definition of Franchise
A franchise, aka franchising, is a business model where the franchise owner (franchisee) gives the franchisee (franchisor) the right to use his name, logo, trademark and business capital.
In return, the franchisor must pay a franchise fee as an initial investment and a royalty fee periodically according to the period stipulated in the franchise agreement.
In the process, the franchisor will provide training, support and quality control to franchisees. Meanwhile, franchisees must run the business in accordance with the franchisor’s standards and policies.
Also read: What are some examples of franchises in Indonesia? Learn about the costs involved and their types!
Profit
- Franchisees can immediately run a business with an established brand and reduce the risk of failure because a customer base has already been established.
- Franchisees get support from the franchisor in their business operations.
- It is easier for franchisors to develop their business without having to intervene directly.
- The franchisor receives payments from franchisees whose funds can be used to develop the business.
Disadvantages
- Franchisees do not have the authority to make business decisions.
- The franchisee has to pay a fairly large initial investment to get the trading rights and still has to share the profits with the franchisor as a return.
- Franchisors cannot directly supervise business operations and this is quite risky for business reputation.
- The franchisor must make joint decisions with the franchisee and comply with the franchise agreement.
Understanding Partnership
A partnership, or in English called a partnership, is a business relationship formed either formally or informally involving two or more people.
In this business model, each party has the same responsibilities and rights, or according to an agreement or partnership agreement that has been approved by all parties.
In this business model, each party has the same responsibilities and rights, or according to an agreement or partnership agreement that has been approved by all parties.
Profit
- You can start a business more easily and at lower costs because all parties work together.
- Have the same responsibilities and profit sharing, or according to agreement.
- Able to work together using their respective skills to achieve common goals.
Disadvantages
- Differences of opinion between partners without a clear dispute resolution process can be detrimental to business.
- The partner is personally liable if the debt is not paid.
- The actions of one partner may make the other partner equally responsible.
Also read: No need to spend a lot of capital, here are 13 food franchises under 5 million. There Are Many Choices!
Difference between Franchise and Partnership
Even though they look the same, in this article Labamu will summarize a number of differences between franchises and partnerships which can make you understand that these two business models are actually different.
1. Ownership
Salah satu perbedaan franchise dan kemitraan yang paling signifikan adalah perihal kepemilikan (ownership).
The franchisee (franchisee) has the right to use the trademark and franchise license provided by the franchise owner (franchisor). However, this does not make the franchisee the owner of the brand. The reason is, when the contract ends, the franchisee has no right to use it again or has to extend it if he wants to continue using the trademark.
Meanwhile, in the partnership business model, each partner is the owner of the trademark. They stepped in and took part in the discussion using their respective skills. Therefore, in a partnership all partners have equal responsibility.
2. Distribution of Profits
The distribution of profits for each of these business models actually varies. Depends on the cooperation agreement that has been agreed by each party.
Generally, the franchise agreement will describe the systematic distribution of profits in detail. This relates to the initial costs and the percentage of royalties as a return. However, there are also franchises that do not charge royalties and only charge an initial investment fee. That means all profits belong to the partner.
Meanwhile, profits and losses in the partnership business model will be shared equally among all partners, or following the provisions of the partnership agreement. Usually, it is determined according to the capital contribution they provide to build the business.
3. Financial Burden
Another major difference between a franchise and a partnership is the financial responsibility of the business owner. The level of financial responsibility depends on the specific business model adopted and the terms set forth in the agreement establishing the franchise or partnership.
In a franchise, the responsibility of the franchisee (franchisor) depends on the provisions stated in the franchise agreement (franchise agreement). Where, a franchise agreement is a document that establishes the relationship between the franchisee and the franchisee.
Meanwhile, the financial responsibilities of partnership business owners depend on the specific provisions in the partnership agreement. There are two types of partnership agreements that are commonly used, namely:
- A general partnership is where two or more business partners share equal responsibility for the operation of the business
- A limited liability partnership is where each partner’s liability depends on the percentage of financial stake they own in the business.
4. Control and Decision Making
Then in terms of control and decision making, the franchise business model does not give franchisees the freedom to make their own business decisions. The reason is, in order to maintain consistency and quality, the franchisor has set special standards that franchisees must comply with.
In contrast, in a partnership, partners can collaborate and share responsibility for decision making and business control. However, back to the agreed partnership agreement. Some partners may have more control over the business than others. What you need to understand is that disputes between partners may be difficult to resolve and the decision-making process may become more complex.
5. Support and Resources
Lastly, in a franchise business model, franchisees will get support and resources from the brand owner. This could be in the form of training, work equipment, marketing support, and procurement of raw materials. Where, the franchisor must comply and follow the business model set by the franchisor.
Meanwhile, in a partnership, there is no special support or resources from other parties, apart from the partners themselves. This is also included in determining the business model, this is entirely the right and responsibility of the partners.
After reading this article, it is clear that franchising and partnership are two separate and completely different business structures.
If you are the type of person who wants to run a stable business and is willing to sacrifice creative ideas in exchange for the extra support you get, the franchise business model is worth considering. On the other hand, if you prefer to work with people who are “free” but have the same vision, a partnership business model could be an option.
But regardless of your choice, always use the Labamu application to record all business activities and transactions. Hurry up and download the application on Google Play or the App Store.
