Franchising is one of the most popular forms of conducting business nowadays. A franchise agreement has two parties to it namely a franchisor and the franchisee. Both parties have different sets of responsibilities to fulfill. Under a particular agreement the franchisor gives the rights of manufacturing a certain product or providing a certain service by the franchisee.
For consideration the franchisee gives some amount of money to the franchisor. This sum of money to be given after a particular time period must be agreed in advance and termed as royalty. The franchisor is given the responsibilities of giving the franchisee the rights of producing the products, the processes are shared with franchisee and marketing and other advertisement is done by the franchisor.
On the other hand the franchisee is obliged to perform the processes as per the instructions of the franchisor. This two way coordination and commitment results in several benefits as well as many disadvantages for the both the parties.
The problems that are encountered by the franchisor are that of the consistency in the quality of the products produced by the franchisee. Since the name used by the franchisee is that of the franchisor and any damage to the image of the franchisee means a direct harm or effect on the name and credibility of the franchisor.
So for this purpose the franchisor is always concerned with the fact that the products produced by the franchisee on behalf of the franchisor should be as close as possible to those of the franchisor. The public who uses the products under the same name and logo cannot easily differentiate the products produced by franchisee and the franchisor. For making this practical, the franchisor keeps a close eye on how the other party is complying with the production processes so as to have a complete check on the consistency in quality.
Another disadvantage is how to spot and identify a good franchisor. Further, if the contract is entered into with a particular person for a particular period, it is possible and also have happened in the past that after the period of agreement expires, the franchisee opts not to renew the agreement and since they have all the knowledge, information and experience of producing that product, they come out as a competitor with a different name and slightly changed product.
Real estate franchise opportunities are welcomed by people who have moderate level of investment at their disposal. Franchising is a great opportunity for those people who have a strong desire of earning money but they have limited and constrained options for getting finances. Real estate nowadays also deals in executing transactions for sale and purchase on commercial terms.
These commercial projects are sometimes including the sale and purchase of space which can be effectively and efficiently used for running a franchise. From the perspective of the franchisor, this agreement results in expanding the business with lowest capital. Also not to forget the fact that the revenue that is generated from such agreement is not paltry. The royalty fee is often in millions and it is inflated on every renewal.