Starting a Franchise

A franchise is an agreement between two legally independent parties, a Franchisor (seller) and a Franchisee (buyer) wherein the franchisor sells a right to market product or service using the trademark or trade name owned  by his/her business and the franchisee agrees to market the same adopting the predefined operating methods of the franchisor. Franchisee, apart from the incurred cost on buying also has to oblige to a payment of royalty fees which is periodical and franchisor takes up an obligation to provide continued support to the franchisee, throughout franchise lifetime.

Types of Franchise

Even though the types of the franchise can be classified into various categories based on the industry, product and so on; the most recognized classification is based on the type of ownership.

Ownership on Distribution: It is a type of franchise model wherein the franchisee purchases a right to distribute a product as per standard protocols set by the franchisor. Best examples of such businesses are Coco-Cola Company, Ford or Hyundai Cars etc. Such Businesses could be just dealership based and are limited to sales and not the actual production.

Ownership on Business Replication: It is a type of franchise model wherein franchisee purchases the right to replicate entire business as per standard protocols set by the franchisor. The standing examples of such businesses are McDonald’s, Blimpie, IIHT, UPS store etc.

Franchise Based on Unit Type:

Master Unit: A master franchise unit encompasses an ownership of the purchased unit and right to develop the other centers that would then be the sub-centers of the region. In some cases, a single franchise could buy more than one center in a specific geographical area (a city, town, region, country) with managing operations from one center and treat rest as sub-centers. There are also instances where the franchisor waits for a certain number of centers to be started in a region before selling/nominating a master franchise which could then act as service provider to the other already existing units.

Sub Unit (may be also called single, regional or sector centers): It is a single franchise unit that could be completely independent of or dependent on a master franchise depending on the franchise agreement. A franchise could also purchase multiple single units and operate them independent of each other if allowed by the franchisor.

Most of the major franchisors such as Subway, Jan-Pro, IIHT Technologies, and Kumon provide options for either type of ownership. For easy understanding, let us consider an example of a franchise like IIHT. It was started in India two decades ago and has adopted the franchise business model, after a few years of success, for multiple reasons. It grew very fast through 100s of franchises across the nation, selling both master franchises and region franchises, set up an independent wing in China replicating entire operation similar to one in India. It now has centers in Malaysia, Turkey, and many African countries. The franchise type is customized as per country requirements, law of the land and best practices.

It is essential to know best franchise to get into is and various classifications so that as a prospective buyer, you are sure what type of franchise exists and are able to analyze and choose the one that suits you best. You should also explore franchise costs, brand reputation, terms and condition and explore multiple facets of a franchise.