Franchisor (Copyright Holder), a legal entity or sole proprietor, is the owner of the rights to a franchise package (franchise), which manages the complex of exclusive rights belonging to it, commercial experience and business reputation.
Franchisee (User) is a legal entity or sole proprietor who acquires franchise rights from a franchisor under the franchise agreement.
A franchise is a set of exclusive rights, business reputation, commercial experience, and a franchise package sold by a franchisor.
Lump sum is a one-time franchise payment to the franchisor. It may include payments for premises, equipment, goods, materials and other contractual elements provided by the franchisee. Lump sum is usually paid at the conclusion of the contract.
Royalties are periodic payments to the franchisor for the use
of intellectual property rights and operating systems. It is usually calculated as a percentage of gross sales or other financial indicators, and may be a fixed fee.
Therefore, to acquire a franchise and work on it means to legally use someone's already developed know-how, trademark, materials. Market analysis has been already conducted for you, so as concept, logo, instructions and scripts have been designed. Indeed, these statements are true in case we are talking about a good franchise. And we don't work with the bad ones.
- Opportunity to use a recognizable brand = reduced advertising costs;
- Proven business model;
- Business management training and support in this process;
- Verified and confirmed sales channels;
- The ability to get a delay on payments;
- The ability to quickly launch a business.
However, any truly working business has shortcomings, that’s okay. Here is an example of some disadvantages of franchising:
- Additional costs for a lump sum fee (by the way, the winners of the FranchCamp contest receive investments for the franchise, and therefore are exempt from a lump sum fee);
- Limitations in actions of the franchisee;
- It's not always possible to be out of business easily, if the business didn't work out;
- You can't compete with other franchisees.
What is the franchise agreement?
Franchise agreement is a document that establishes the composition of the franchise, the terms of its acquisition, as well as the rights and obligations of the franchisee and franchisor.
The current legislation does not contain the concept of the “franchise agreement”. Most often, this document can mean different types of agreements.
A commercial concession agreement and a license agreement are two types of contracts that are most often used in franchising. To learn more about the types of contracts, watch our free webinar “Essential Elements of a Good Franchise Agreement”.
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