Franchise: Franchise is termed as a business that has license to do marketing of goods and services of a particular company.
Franchising: Franchising is an innovative marketing concept of doing business including distribution of goods and services. While in the process of franchising, a business relationship between the franchisor, the owner of a company who provides goods and services, and the franchisees, independent people, is maintained. Franchisor provides business to his franchisees by assigning some rights to them to distribute and sell their goods and services in the market.
Many business models are represented by the way franchising is done in the company.
Some of the models described by the business relationship maintained in the businesses are:
Manufacturer-Retailer: Here, the franchisor's product is sold directly to the public by the retailer acting as a franchisee.
Manufacturer-Wholesaler: The franchisor products are manufactured and distributed by the wholesaler acting as a franchisee.
Wholesaler-retailer: Retailer acting a franchisee buys products from the wholesaler of franchisor.
Retailer-retailer: The distribution and selling of products and services by franchisor are done under a common name through a network of franchisees.
Franchising helps both, the franchisor and the franchisee, in maintaining Win-Win business relationship. As through this the franchisor can expand his business without investing his own capital and the franchisee gets an access to start through an established business system, at lower risk.
Before establishing a relationship between the franchisor and the franchisee, a highly detailed franchise agreement is maintained and signed by both of them to make their relationship legal. The control of whole system is given to the franchisor because the franchisor got more power than the franchisee.
Franchise Sale: The process of selling of business by an existing franchisee requires that each step must follow the franchise agreement signed between the franchisee and the franchisor.
Here, the franchisee needs to get the prior approval from the franchisor regarding the purchase of the business.
The purchaser of the franchisee's business requires to go through the same selection criteria faced by the franchisee earlier. With that, it is suggested that all franchisees who want to sell their business should ensure that they get an effective legal advice from the lawyers.
Inform the franchisor regarding the selling of franchise: Most of the time, the franchise agreement signed between the franchisor and the franchisee underlines some conditions and rules under which the franchise can sell its business. The purchaser should meet the criteria set by the franchisor to get the franchise.
Maintain the franchise in good condition before selling: The franchisee should put his best effort foreword in presenting the franchise in good condition to get best price from the purchaser. The franchise should ensure that all the equipment and machines are working properly and all the financial records are accurately maintained.
Look out for the reason of selling: The franchisee must know the reason behind the selling. If it is illness, retirement or relocation than it won't cause any negative impact on its potential customers, but if it is poor sales or sour relationship between the franchisor then it can produce negative effect on the potential customers.
Price the franchise well for the sell: Always price your franchise by considering some of pricing factors like the location and profits earned by the franchise. In addition to this, the franchisee can take help from the franchisor regarding the selling done by other franchisees.
Look out for more options: The franchisee can either go to the franchisor or to any business broker to sell its franchise.
The franchise agreement signed between the franchisor and the franchise often contains buy-back and right of first refusal clauses.
The clauses often contain some conditions that the franchisor can buy back the franchise from the franchisee before his offer it to other buyers. These types of clauses are usually maintained keeping the interest of the franchisor on priority. For the valuation of the franchise, the franchisor usually sends an appraiser to the franchisee.
On the other hand, in the first refusal rights, the franchisor should match the offer given by an outside buyer by sending an appraiser to valuate the offer.