photo credit: eknme.me

Franchising involves purchasing a legal license to use a trademark or business concept. The party that obtains the license  is called a franchisee; with the license, the franchisee is basically able to run the same business as other business that run with under the same business name.

The company that owns the right to the business (franchisor) gives the franchisee access to business  propriety knowledge , processes and trademark in exchange for a one off franchisee fee and ongoing royalty fees.
The business the franchisee runs with the license is owned by him /her but operations within the business is according to the franchisee agreement signed by both parties (franchisee and franchisor)

Benefits of franchising for franchisee

-Reduced risk, as market research and product development is under taken by franchisor
– Properly developed business structure and processes; ongoing training and support from franchisor
– Increased buying power and ability to compete with other major brands in the market
– financial and accounting assistance
– site selection assistance to aid proper positioning of business in a location where it will thrive
– Collective advertising and promotional campaigns which is will boost business for franchisee

Downsides of franchising for franchisee
-Limitations ,with franchises you are more involved in managing a business than actually building one.
– lack of freedom ; the franchisee agreement binds the franchisee to specified business operations,culture and practices.
– Risk by association ;any problem that affects the franchisor usually affects franchisees.
– High cost – obtaining license to operate a franchise is usually expensive and the ongoing royalty fees can have a huge impact on funds within the business.

Before signing a franchisee agreement,it is important to properly research the franchisor, have the agreement reviewed by lawyers , accountants and advisors to make sure the franchisor owns a reputable brand that is profitable.

Every franchisee should take a close look at the following

– Cost involved in setting up and operating the business.
– Track record of the franchisor.
– The exclusivity of the agreement.
– The limitations in the agreement.
– Profitability of the business.
– The unfair advantage and ability to compete with other brands that might exist in the market space.
– Management system provided , can it help you easily detect and solve problems that can arise from running the business?
-The value you receive for the franchisee fees such as trainings, trademarks, patents, commitment to making your busiess work e.t.c
– The image of the franchisor’s brand.
-The industry the business operates within ; how successful is that industry?

Some franchise businesses in Nigeria include, Domino’s pizza,KFC,Chicken republic,tantalizers,KIA, Shell, Toyota, Avis car rental…..

While there are no specific laws that affect franchising in Nigeria, there are laws that can affect the operations of franchises ,it is therefore very important to involve lawyers and advisors when setting up such business.