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When a franchisor claims to have know-how he must not only have ideas but also experience.

He usually acquires this experience in the shops he owns, i.e. in his branches (part of the same company) or in subsidiaries (other companies owned by him).

All - or a number - of these subsidiaries or branches serve to improve know-how, to test out ideas or to demonstrate the latest concept developments that are to be used by new franchisees. In the world of franchising, the test units or business models that are then copied by franchisees are called “pilot businesses”.

It is also possible, however, that a franchisor signs an agreement with one or several franchisees for them to run pilot businesses. There are several reasons for this: the franchisor may not wish to invest in such a pilot unit himself (Why? Through lack of resources? Investigate thoroughly.) or because he wishes to learn how businesses other than his own cope with his business concept (a rarer but much sounder policy).

The transfer of the system to the franchisee should be as straightforward as possible, thus allowing the franchisee to acquire the knowledge necessary in a relatively short time frame.
The franchisee training period is generally composed of two quite distinct elements:
a) A theoretical and practical training phase, provided at the franchisor’s premises and in existing outlets.
b) A second on-site support phase during the opening and launch of the franchised outlet.

There are various types of franchise. Generally speaking, a distinction can be made between industrial franchising and commercial franchising:

• Industrial franchising: form of business collaboration between manufacturers. The franchisor owns a manufacturing system and/or exclusive patents, which are assigned to another manufacturer for use in a predetermined territory. Given that the franchisee could easily undermine the franchisor by copying formulae and methodology received, the franchisor does not generally transfer the entire production process to the franchisee, only a part thereof.
• Commercial franchising: this type of franchising can be divided into:
   o Goods franchising or distribution franchising: franchise system whose objective is to market a product or a number of products, usually manufactured, distributed or selected by the franchisor, on an exclusive basis, or otherwise. (e.g. clothing)
   o Service franchise: business aiming to provide a service or group of services, commercialised by the franchisee, in accordance with methodology provided by the franchisor. This type of franchise requires a greater level of control by the franchisor in order to guarantee that the service provided is adequate. (e.g.  hotels)
  o Mixed franchise: franchises which integrate both goods and services. (e.g.  certain restaurants)

This is a form of franchising whereby the franchisor grants another natural or legal person, known as the master franchisee, the right to operate a franchise in a major territory (a country for example). The franchisee is then expected to agree franchise agreements with other individual franchisees. The master franchisee thus acts as a franchisee vis-à-vis the original franchisor and usually plays the role of franchisor with regard to the individual franchisees recruited. This position is comparable to the role of importers or wholesalers.

The person purchasing your franchise may have to pay all or part of an entry fee ...

… if a provision has been made for this and this is generally the case when the franchisor must provide new services to make the new franchisee successful – clarifying standards, training, assistance, etc... Ask the franchisor what the provisions are.

The franchisor can refuse to accept the person wishing to purchase the franchise if the franchise contract provides for this.

It is rare that someone young has had the time to save enough to have sufficient personal funds to start up their own business. It is also obvious that before working “for oneself”...

... it is useful to have amassed some experience of “working for other people”. But apart from this, there is no minimum level of experience for becoming a franchisee. The skills required for a bakery shop franchise are different from those for a clothing shop and your application will therefore be assessed differently depending on the sector.

However, all franchisees need to have some commercial and business sense as well as experience of working autonomously without being free-lance. One must be capable of agreeing to follow the network’s rules … and then actually doing so.

It would require pages and pages to reply properly but let’s look at the main points:

● Consumers do not differentiate between branches and franchise outlets when they both have well-known names.

● Consumers turn to what they know and what they find reassuring. Objectively, they are more likely to know a large network and be attracted by its advertising than know an individual trader and they find the fact that the large network’s range is well-known reassuring.

Oh yes, absolutely! Know-how is one of a franchise’s three basic components, along with a name (and other measures for winning customers) and a collection of products and/or services.

It is know-how that makes the difference between a franchise and a concession as a concession offers a name and collection of products and/or services without providing any know-how.

Franchises are a form of collaboration between a franchisor who has his own business and a franchisee who is creating his own.  

The fact that one is a franchisee does not mean that one is not creating a business but simply that one is relying on a network, a name, know-how and assistance from the franchisor, etc.

Franchises are, therefore, not an alternative to setting up a business – on the contrary they are one of the different ways of starting up a business.

To put it in simple terms: a licence grants someone the right to use a trademark or brand and generally includes some restrictions to protect the brand, whereas...

...a franchise also provides know-how and ensures that everyone involved has mastered this know-how.

And then there is the “concession” which falls somewhere between the two. A concession grants someone the right to market a range of products or services as well as to use the trademark. (Of course, franchises also grant a concession for a range of products or services.)

And to answer the second question: Yes, franchises are just as suitable for export markets as they are for national markets.

The amount that needs to be borrowed is the total investment to be made minus your personal contribution.

The total borrowing requirement mainly includes the acquisition of a premises, any renovation or building work that has to be carried out on the premises, the stock, the entry fee and the start-up costs.

A franchisor always helps to put the bank documents together or gives you the information needed to do this.

If your business fails then a franchise is just like any other business: you not only lose your entry fee but must also pay back the amount you have personally guaranteed.

A franchisee is a business owner. As with all business owners, he is working for himself........

....and decides himself how high his salary should be. The size of his salary will depend on how profitable his business is. He keeps the profits but must also bear any losses.

If franchises do not specify how much “you will earn” in their brochures, then this is because it is impossible for them to forecast earnings without taking the town, the competition and the person etc into account.

No one works for nothing. This network probably makes its living by installing equipment or fitting out premises, which is not unusual if things are clear right from the very beginning.

However beware of networks that do not have any obligations.
You may find yourself developing your business in one direction whilst others working in the network are doing something totally different.

If different people within a network do different things then this will weaken the image of the network’s brand name and have an effect on many other matters such as hygiene standards, standard of service, general appearance of the business, etc...

The expression “national advertising” often leads to confusion.

Obviously a franchisor with 5 franchisees cannot run TV commercials but he can already carry out advertising campaigns for his entire network, even if his campaigns only use local media such as regional newspapers or posters.

In short, national advertising means advertising used by the whole of the network and not just the use of national media across the country.

You benefit by spreading the fixed costs over 5 units instead of just one. Of course, suitable media must be used.