How franchising works
Date : March 6, 2024
HOW THE FRANCHISE WORKS
What is a franchise?
A win-win formula that offers benefits to all. You write franchise, you read opportunity to do business and accelerate the growth of a brand. Technically, franchising is an affiliation formula that links an entrepreneur who has developed his own brand, of goods as well as services, with other entrepreneurs who want to take advantage of the formula for his success.
There are two players in the partnership: on the one hand, there is the entrepreneur who started the brand, called the franchisor, and on the other hand there is another entrepreneur, or even a company, that adheres to the franchisor’s formula, also called the franchisee. The two bind themselves in a contract that provides both burdens and benefits for both.
The franchisor cedes to the franchisee the ability to be able to use the brand name and puts the skills he has acquired (know how, in technical terms) and his assistance, at the service of the franchisee, who in return contributes to the franchise network by paying fees and royalties.
What is meant by know-how? The Operations Manual.
As we told you earlier, the franchisor holds two magnets that serve to attract potential franchisees. The first is the strength of a brand that has already been tested in the market and already has its own recognition among an audience of customers.
The other, on the other hand, is the experience he has gained in his business and turned into operating standards. It is precisely the franchisor’s ability to transfer his skills, his know-how, that is the basis of a franchise network.
To then transmit these skills, the franchisor has in his possession two tools. The first is the operations manual, which you have to imagine as a comprehensive guide explaining how franchising works from A to Z. The other is the training, which he makes available to the franchisees. The latter pay for the franchise commitment and experience first with an entry fee, which allows them to join the network, and then with royalties, calculated as a percentage of turnover. Beyond a few specific legal aspects, the franchise formula is developed in similar ways in Italy, as abroad.
By “know how” in a franchise we mean the set of experiences, information, knowledge and skills, which represent the assets that the franchisor offers as a dowry to the franchisee, to help him to better manage his entrepreneurial activity.
What happens to me if I sign a franchise agreement, but I don't have an operating manual?
It is strongly discouraged. If you don't have an operating manual, it means that you haven't managed to put the know-how to transfer to your affiliates on paper. Without it, the main pillar that supports your franchising project is missing. On top of this, not having a manual exposes you to legal risks with dissatisfied affiliates, who could easily challenge the contract.
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