In the modern age, ways of doing business have transformed into various different methods. People have found new ways to carry on their business operations just in a non-conventional way. Majority of them tend to look for ways that can guarantee instant success in their organizations. This is because the conventional methods of doing business like starting from scratch and making your own brand takes too much effort and time.

The franchise system is getting more popular as it involves less hassle, limited and smart effort and guarantees quick success. There are certain arrangements in franchising that need to be made before and while running a franchise. These franchise arrangements are a business framework that highlights the structure that will be incorporated for the franchise to run efficiently. Franchise arrangements involve two major stakeholders to be made i.e. franchisor and franchisee. These arrangements are made to make sure that the franchisor and franchisee are on the same page.

This blog brings you thorough details of franchise arrangements that are needed to confirm the negotiation regarding the buying process and every detail that must be known to both the parties. Read through the complete article and get complete knowledge of the franchise arrangements to either buy or sell a franchise.

 Fundamentals of Franchise Arrangements

There are two sides of a franchise arrangement. One is controlled by the franchisor and the other one by the franchisee. They both share different responsibilities in structuring a franchise arrangement.

a) Franchisor

The franchisor is the owner of the company to be franchised. As per the point of view of both the franchisor and the franchisee, there are various elements that need to be arranged before the agreement of the franchise proceeds. The franchisor has to provide the rights to the franchisee that he/she can operate business under the name of the original brand and use the intangible assets of the brand. There are many components under these grants.

The franchisor is supposed to allow the franchisor to use the name of the company’s brand name, logo and different intellectual property. This allows the franchisor to gain quick success for the business as they are running a franchise of an already established brand which has made its goodwill or reputation over the years. The franchisee can expect the generation of revenue faster, than with the launch of a completely new business, because of brand loyal customers.

The franchisor is to give the business framework of the brand to the franchisee. In the arrangement, the franchisor decides whether to give full autonomy to the franchisee or allow a certain percentage of freedom where he/she can come up with their own idea of running their franchise. The business framework includes supplier networks, procedures of operations and marketing strategies. Moreover, the arrangement involves the procedure and duration of training by the franchisor. This is necessary for the franchisor to make sure that the franchise is being run as per the policies and the standard level of service offered by the actual brand and so that the franchisee can maintain the reputation of the brand. The franchise arrangements could also include the marketing and advertising strategies. This is because it would be really unwise to make different ads and run different marketing campaigns for the same brand unless the franchise is in another country because then the demographics and the psychographics of the target audience change. They handle or even support national and regional marketing campaigns through their advertising funds.

b) Franchisee

The franchisee is the one who buys the franchise from the franchisor and operates the business by himself while enjoying some autonomy in running the operations of the business. The arrangements include some elements that are to be provided by the franchisee in order to get the rights of buying and running the franchise.

As per the arrangements of franchising, the franchisee is supposed to pay the initial franchise fee. This is a onetime payment made to franchisor to get the right of operating the franchise on a new location. Moreover, the franchisee could decide the amount of royalties to be paid. This amount is paid as a part of the total monthly or weekly gross revenue of the franchise. It is supposed to be paid under the notion that the revenue that is being earned by the franchise is because of the efforts of the original brand in terms of marketing and brand building so the franchisee is liable to pay some amount from the total monthly revenue to the franchisor.

This amount is just like paying a rent to the owner of the brand for using the brand name and its intellectual property. Moreover, the franchisor does help in marketing but the franchisee could be asked to contribute some amount in the national or regional marketing fund. The franchisee can decide the amount he wants to contribute willingly. Other than this, the arrangement could ask the franchisee to abide by all the policies and strategies and enjoy autonomy as per written in the arrangement. 

This would now set up the whole franchise arrangement. The structure would be built from the franchisor and the franchisee’s side separately and given to each other for an overview to make sure that they agree with the structure, or if they want to negotiate some pointers. The moment both parties give their approval on the proposed franchise arrangement, the agreement is made and signed by both the parties to make it legal and official.

This arrangement offers a methodological approach to the business expansion for the benefit of the concerned parties. Franchise arrangements are created through a collaborative approach involving franchisor, franchisee and some franchise experts like National Franchise Association so that maximum benefit can be derived from business expansion.