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NEWS - PLANNING
Franchising - a unique way of owning a business
2/18/2002
Franchising is a unique way of starting a business because it offers a combination of starting a company from scratch and working for a corporation. Regardless of the type of franchise, franchisees pay an initial fee for the right to use the system's business model and brand. Franchisees must adhere to the business model, but run the individual locations themselves.
In return for the right to use the model, franchisees pay royalty fees usually based on a percentage of sales, revenues or margins. Franchisees also must make an initial investment to open the franchise location. This amount varies with the cost calculated to cover training, equipment, supplies and other start-up expenses.
Franchise companies have a vested interest in seeing their franchisees succeed, because the more money each location generates, the more the franchiser receives in royalties. So most companies offer a range of services to help franchisees, including financial assistance, advertising, business and territory development advice and customized software packages. As advertising is expensive many franchisers charge a fee to help pay for major campaigns.
When franchises were first introduced, they largely attracted "mum and dad" types who were lulled into a false sense of security with the promise of big dollars in return for very little effort. There were promises of "just follow the manual and you will make your fortune".
However, the franchisee profile has changed significantly during the last few years. Franchisees today are generally more sophisticated, come from corporate Australia and have years of business experience on their side. So, why the new wave of independent, free thinking franchise owners?
It's no coincidence that many of these people were corporate bigwigs who left voluntarily or were dumped overboard in mid-career as organisations restructured. They have redundancy payouts, ambition, management skills and the initiative to start a business. They also are prepared to build themselves a substantial business using their corporate skills and knowledge. These franchisees are committed to injecting fresh ideas into as many aspects of their businesses as they can.
As you drive around your suburbs you will see that there is no lack of places to have some instant copying done, or to indulge in a fast food feast. However, it is the very repetitiveness of these types of franchises that is making more astute franchise owners search for that something extra. Something that will attract business outside the confines of the manuals, policies and guidelines of the master franchiser.
Successful franchisees must stay sufficiently within the framework to satisfy the basics like maintaining uniformity of product and style, but may venture sufficiently outside it to test new techniques in sales, marketing, operations, and other key areas. They're not out to buck the system but to sensibly take and act upon the best advice their franchisers can provide and then add value by implementing their own ideas. They can't afford the luxury of waiting for a head office is some far away country to get them out of their latest competitive crisis. Their very survival is at stake.
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