Franchising is a cooperation model between two companies. The operating model is based on the business idea developed by the franchisor, which has been tried and tested, found successful and profitable, and then modelled as a concept.
The franchisor shall give the local franchisee the right to use the concept, i.e. the related know-how, trademarks, and cooperation benefits. This forms a cooperation network, called the franchising chain.
The characteristics of franchising chains include:
1. Franchising refers to long-term contractual cooperation between two independent enterprises, the franchisor and the franchisee. The franchisor does not normally finance the franchisee or own any shares in the franchisee’s company. However, the franchisor usually operates some outlets of its own in the chain.
2. The cooperation is based on a concept developed by the franchisor and licensed to the franchisee. All members of the chain operate in the market in accordance with the same concept. The members of the chain also operate under a common brand and with a uniform appearance.
3. The franchisor transfers the concept and the related know-how to the franchisee through training and manuals. The manuals document all the most essential issues and instructions that the entrepreneur must know in his or her operations. The franchisee commits him/herself to following these instructions and guidelines in its business, and undertakes to fulfil the quality requirements of the concept.
The franchisor provides and arranges continuous commercial and technical support for the franchisees in the chain. When the entrepreneur starts his or her business, the franchisee provides him or her with training and assistance in issues related to starting the business, such as acquiring and equipping the premises, purchasing agreements, arranging an opening celebration, etc. The franchisee shall continuously develop the competitive ability and operations of the members of the chain through marketing actions, training, monitoring and planning systems, advice, internal communication of information, and the exchange of experiences.
4. The operations are fee-based for the entrepreneur: he or she pays the franchisor one-time and/or recurring fees for the right to use the concept, the membership of the chain, and the benefits and services received.
5. The franchisor manages the cooperation chain and controls the operations of the franchisee. The rights and obligations of the parties, rules of cooperation, and termination of cooperation and its consequences are always specified in a written agreement.
For further information on franchising, please refer to the website of the Finnish franchising association (Suomen Franchising-Yritys). FranCon Franchise Consulting has compiled a list of business chains seeking new entrepreneurs on the Ketju.fi website. The links to both these websites can be found on the right-hand side column.