Entrepreneurship is all about making your dreams come true. But setting up a new business from scratch has its own challenges. What if I tell you there’s a way to pursue your dream business with backing from experienced business teams?
Yes, you guessed it right. I’m talking about business franchising. A strong relationship between franchisor and franchisee can help you build a successful business.
So, before you buy the license to set up a franchise, it’s essential to understand your roles and responsibilities.
Let’s Define Franchisor and Franchisee
A franchisor is the owner of a successful brand. The brand name has earned recognition and customers’ trust. Now, the business owner wants to expand operations. But it may not be feasible for them to launch a new branch on their own. So, they decide to give the license to someone else who would start a new business using the name of the established brand.
A franchisee is the one who purchases the license from the franchisor. They can now operate a business under the trademark of the original business owners.
This model works as a win-win for both parties.
The Roles of Franchisors and Franchisees
Now that you know what is the difference between a franchisor and a franchisee, it’s time to learn about the different roles of a franchisor vs franchisee.
Before you invest in a franchise license, it’s crucial to understand contract terms. Make sure the franchisor provides you with a Franchise Disclosure Document (FDD). This document contains information about the roles of both parties.
Roles/Responsibilities of a Franchisor
Provide Resources and Support
The franchisor needs to provide a sustainable business model to the franchisee. This will help the new business set up its operations at a new location. All marketing materials, including logos and trademarks, are also provided by the franchisor.
Further, the franchisor should help them develop and implement the brand concept and marketing strategy. In the long run, the franchisor can assist the franchisee with ongoing training and support.
Operational Control
When setting up a franchise, the franchisor must provide initial training, brand guidelines, and operational manuals to the franchisee. However, the operational control remains in the hands of the franchisor.
They set up quality control measures that all franchisees must comply with. Then regular audits and evaluations help them ensure the licensees are running businesses as per guidelines.
Decision-Making Power
When it comes to major business decisions, the franchisor holds control.
They are responsible for strategic decisions. Whether the franchise owner wants to introduce a new product or enter a new market, they need the franchisor’s approval. Marketing decisions such as marketing campaigns and social media messages are also under the franchisor’s control.
The franchisor makes operational, financial, risk management, and innovation decisions. Then, it guides franchise owners about how to comply with these decisions.
Network and Supply Chain Management
Reputable brands have a network of vendors and distributors. They trust their vendor network to provide quality products or services on time. To maintain quality, they oblige franchisees to conduct business through their network.
Similarly, franchisors are responsible for providing support in negotiating contracts and pricing. In the event of any conflicts, the franchisor should help resolve matters.
Roles/Responsibilities of a Franchisee
Payment of Fee
Franchisees need to make initial as well as ongoing payments to become a part of the franchisor’s network.
The most prominent is a lump sum franchise fee that covers the cost of the franchising license. As a franchisee, you may also need to pay for initial training, inventory, and equipment needed to start the business.
As for ongoing payments, the most important is the ongoing royalty fees. Generally, you pay the franchisor 5-9% of gross sales every month. Additionally, you have to make regular payments in terms of marketing fees, ongoing support fees, and access-to-technology fees.
Regulatory Compliance
Another responsibility of the franchise business owners is to protect the brand’s reputation.
The franchisors will guide you about brand standards. So, make sure you follow their guidelines. Always maintain the quality of products/services. Also, value your customers. Pay attention to their complaints and provide exceptional customer service.
Furthermore, adhere to industry standards and be compliant with laws and regulations. This will promote a strong relationship between the franchisee and the franchisor.
Managing Day-to-Day Operations
Developing business strategies is the responsibility of the franchisor. But as a franchisee, it’s up to you to manage day-to-day operations such as:
- Keeping track of inventory
- Managing cash flow and reporting financial statements to the franchisor
- Implementing quality control measures
- Compliance with the franchise agreement
- Following business operations guidelines as provided in the operations manual by the franchisor.
Staff Management
Franchisees also need to recruit the necessary staff to manage business operations. For this purpose, it’s important to develop a suitable recruitment process.
The recruitment process involves advertising job vacancies, shortlisting candidates, conducting interviews, and making the right recruitment decisions. Further, you need to train employees to ensure they understand their job roles and can effectively perform their tasks.
Your franchisor may provide guidelines and materials to assist you with recruitment and employee training.
Franchisor and Franchisee: Mindset Difference
When it comes to franchisor vs franchisee, their goals and mindsets slightly differ.
The franchisee is focused on building a stable business. They may want to meet and exceed revenue targets. When the business becomes profitable, they may be interested in opening new franchised locations.
Franchisors, on the other hand, are more focused on building brand reputation. They want to maintain quality standards. For this purpose, they provide guidance to franchisees and conduct audits to ensure franchise owners follow their guidelines.
In short, the mindset of the franchisor and franchisee may differ. But their common goal is to make the business profitable and earn the trust of customers.