Franchisee

Updated on 2023-08-29T11:58:18.744200Z

A franchisee is a small business unit which purchases the right to use big business trademarks, brands, and other trademarked knowledge to sell the same brand.

Franchisees are independent operators of third-party outlets known as franchises.

It is a very common way of doing business as it allows an individual brand to spread its stores far and wide, sometimes in every nook and corner of a city. For example, McDonalds operates through franchisees in every part of the world. There can be huge business opportunities available in all industries.

 Why Franchisees?

When a business wants to spread out and garner more market share and increase its geographical presence, it can take the route of franchise for its products. The franchisor is the original business owner who sells the right to use its name and idea. The franchisee is the individual who buys into the original company by purchasing the right to sell the franchisor’s goods or services under the existing business model and trademark.

Why Become a Franchisee?

There are several advantages to start a franchise. It is ideal profession for businessmen with little or no experience because the cost of opening a franchise is low as compared to start a full company. Opening a franchise requires very little capital and franchisees are always under the supervision of the franchisor, so get a lot of help, guidance and feedback.

Franchisee and Franchisor Relationship

A franchisee and franchisor relationship is that of a mentor and student. The franchisor keeps guiding them regarding business strategies. The franchisee even provides advice on the best place/location to set up the operation so that the franchisee faces minimal competition. In return, the franchisee pays a start-up fee, plus a percentage of the gross revenues to the franchisor.

How does a franchisee work?

A franchisee must follow a business model that the Company has already prepared and put in place. That helps in maintaining a consistency in operations throughout other locations. All the marketing campaigns must be in line with the prior approval  and comply with the franchisor’s directions. The franchisee must get the approval of the parent company before releasing them.

As the manager of the franchise, the franchisee is supposed to protect the brand name and keep the quality standards.

Franchise Tax

The businesses that are being operated in many states and countries other than their home states have to pay a tax for conducting business in other states, which is referred to as Franchise Tax.

Is a franchisee an owner?

Technically, a franchisee is a small business owner who operates a franchise. The franchisee pays a fee to the franchisor for the right to use the business's already-established knowledge and products. He receives continuous guidance and support from the franchisor, but he is a business entity.

Is there a legal document between the franchisor and franchisee?

A Franchise agreement is a legally binding document between the two parties. It’s a document that gives franchisor’s terms and conditions to the franchisee. Every franchisee is governed by these terms and conditions and is outlined in a written agreement between them.

The agreement between the franchisor and the franchisee governs everything about how the franchise will be run and also what can a franchisee expect from a franchisor.

What Is a Franchise Agreement?

In the United States, a business becomes a franchise if it follows the FTC Franchise Rule. In other countries also there must be similar acts and rules governing the franchisor and franchisee agreements. General terms of the agreement spell out the following things:

• The franchisee’s business is substantially associated with the franchisor's brand. They share the common brand name to conduct the business.
• The franchisor exercises control or provides assistance to the franchisee to conduct business.
• The franchisor receives a fee from the franchisee for using the trademarks and brand of the franchisor.

A successful franchisee needs to have the following traits in him

Wanting to learn new things

As an operating manager, a franchisee has several roles to perform—from a trainer to a watchdog to customer service provider to financial advisor. The franchisor sets standards of the brand but does not interfere in the day-to-day working, so in effect you are responsible for increasing sales and day-to-day running of business. It is a learning curve for the franchisee and if you can master certain skillset, you can become successful.

Ability to Follow System Standards

As a franchisee you have to follow someone else’s system and also, standardised products and services. This along with the licensing rights and restrictions on how you can use the franchisor’s intellectual property, is what you are investing in. A franchisee in return has to report sales and expenses and follow the instructions strictly on how to present the products and services, how to report their sales and expenses, follow instructions on how to present the products and services, and comply with the advertising requirements.

The franchisor sets weekly, monthly and yearly protocols for the franchisee which have to be followed.

Understanding of Small Business

The franchisee must have an understanding of how businesses operate, how to motivate staff, and is no stranger to long working hours.

As a franchisee, your success is measured each day in your franchise's performance, requiring more self-reliance than many corporate managers have had to demonstrate. However, a well-structured franchised system will provide a level of support that contributes to the franchise's success.