What is a franchise / franchising?

What does a ‘franchise offer’ comprise of?

Franchise systems are as a rule only successful if their system is based on an integral concept as far as management, information and working the market are concerned. For this reason the franchisor’s offer consists not only of a business idea but also of an explanation of its concept, realisation and a description of the content of the performance package made available to franchisees. Irrespective of the branch the main elements of the franchisor’s offer are:

Business Concept
The business concept illustrates in a clear and conclusive manner how a business idea can be realised in a limited business sector to achieve certain aims. It also gives information on how the franchisor’s business idea differs from those of his competitors and what competitive advantages can be exploited. The content should, if possible, also contain figures and sources.

Property Rights
A franchisor’s performance package normally includes the right of use to one or more commercial property rights which can involve protected trademarks, word/image signs, service brand names, patents, samples or copyrights. These commercial property rights and brand names are for both new and well-known franchisors especially important and play a direct role in their success. For this reason these brand name rights must be particularly looked after and protected as they are of interest to all of the franchisor’s partners.

Financing Aids
Some franchisors offer new franchisees loans themselves, take over guarantees, finance the leasing of the shop’s set-up, are prepared to extend the time for payment of the entry fee or accept installment payments. Whilst direct financial help from franchisors is an exception, it can normally be expected that they are able to present new franchisees with detailed documents to apply for financing. As well as giving a convincing presentation of the system, new partners must also have different economic calculations. During financing negotiations it is helpful or indeed necessary to present a capital spending plan, a financing scheme, a sales and cost plan as well as a liquidity plan. In certain cases the arrangement of supplier credits, a consignment stock and a return of goods guarantee can contribute to protecting the foundation of a business. It can also be of use if franchisors can arrange contacts to banks, accompany the new partners to the financing negotiations and offer advice on applying for public grants.

Management Aids
The systems head office can help in the following areas: looking for and analysing potential sites, set-up planning, marketing measures, organisation, joint purchasing, accounting, personnel matters, key account acquisitions, quality assurance and controlling. Important management aids are summarised in the systems manual or in other manuals connected to the organisation.

Training Activities
As a rule before starting their own businesses franchisees are intensively prepared during a test phase for their new work either at the head office or in another business, as the new partners must first get to know the franchisor’s know-how and quality standards. Many franchisees have not run an independent business before and besides this they are often starting in a new branch. As a result the training activities must be comprehensive and detailed and are generally separated into an initial training course and regular additional training courses.

Interchange of Know-how
An important element of franchising is the interchange of know-how between the franchisors and their franchisees. Regular meetings to exchange know-how, training courses, working groups or advisory council meetings give business people in similar situations the opportunity to exchange ideas and thoughts. The people from head office visiting the separate franchise businesses note any of the partners’ new experiences and then pass these on to all the other partners in a summarized form. Regular interbusiness comparisons, which are based on economic evaluations carried out by the head office, also help to pass on experiences.

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