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What is Franchising? The Ultimate Guide to Franchising

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    Franchise is a business concept that is growing in Indonesia as many young people try their luck in the business world. Franchise business is a business format that has existed for a long time. This type of business is chosen by several people who don't want to bother with the production flow to product distribution as well as promotions.

    For those of you who want to start a business but don't have the ability to manage a business from scratch, then franchising can be an option. Franchising can help you learn business before you are ready to set up your own MSME business from scratch..

    So some novice businessmen prefer franchise businesses to gain experience in the business world. To be successful in the franchise business, you must know the tips and tricks so that the franchise business lasts and makes big profits. If you are interested in owning or running a franchise business, see the following reviews:


    What is Franchising?


    Recognize Business Expansion, How to Create a Business to Grow

    Franchising comes from the word franchise from Old French which means free and gives freedom to the parties. In general, franchising or franchising is a business concept that has rights or licenses granted to individuals to market their products, which can be goods or services.

    In Indonesia, the term franchise is equivalent in Indonesian, namely franchise which means a business with more profits or special profits. One of the institutions that introduced the franchise business concept in Indonesia was the Management Education and Training Institute or LPPM.

    In Indonesia, one of the companies that has the largest franchise is Pertamina. Pertamina became the first company to carry out retail sales with a franchise concept through public gas station stations, namely gas stations. after that there was the herbal medicine Nyonya Meneer who began to license the sale of herbal medicine to traditional medicine entrepreneurs.

    Franchises in Indonesia are considered very attractive for economic development in Indonesia, so many foreign companies have started implementing French concepts in Indonesia such as KFC, coca-cola, Dunkin Donuts, and others. 

    However, it turns out that this business creates quite fierce competition for local Indonesian entrepreneurs. Because the franchise concept has many advantages, the government is taking steps to develop franchises as part of creating a business partnership climate by utilizing licenses.

    The definition of franchise according to government regulation number 42 of 2007, franchising is a franchise that has special rights owned by a person or business entity against a business system with business characteristics in order to market goods or services that have proven successful and can be utilized by other parties based on the franchise agreement .

    Profits Franchise / Franchise


    As a business concept that is quite popular and has the opportunity to get quite a lot of profit, there are also benefits from a franchise business that you might feel when you run it.

    • The business advantage for the franchisor is to share profits with the franchisee while reducing business risk. The franchisor or those who own the franchise can use other people's capital to develop their business and expand their services. After that he will get a source of income such as fees and royalties to become passive income for the franchisor.
    • Franchisees can take advantage of the available network for expansion as well as business expansion that is cheaper, easier and faster.
    • Franchise business techniques can speed up market control time and increase sales and marketing results from franchising businesses. This business is very profitable for franchisors, such as facilitating management oversight to increasing offers of funding sources.
    • Another advantage of the franchise business for the franchisee is that it can reduce the risk of loss. This is because the franchisor will help solve all the problems that can occur at any time. In addition, franchisees can have a fairly short and easy business rather than having to start a business from scratch. He can be helped from the brand side because he doesn't need to think about marketing concepts to branding.
    • Another advantage for the franchisee is to gain experience, skills, and how to work, which is taught from the start by the company. Franchisees don't need to think about production business systems to product development because everything has its own conditions, so you only need to follow these conditions.

    What characteristics should be acquired by the franchisees?


    The franchise business system has a written agreement or contract representing the interests between the franchisee and the franchisor. The franchisor will provide training related to the aspects of the business he is running. Franchisee Under the control of the franchisor is allowed to operate under the trademark format and good reputation owned by the franchisor.

    Then the franchisee and franchisor have the right to determine their sales area or location as the only party that markets goods or services. Franchisees make investments that come from their own funds or are supported by other sources such as bank credit.

    What are types of franchise?


    1. Franchise Products


    This type of franchise focuses on the franchisor distributing products from the franchisor with area restrictions.

    2. Process Franchise Or Manufacturing Franchise


    This type of franchise plays an important role and informs a production process, such as Coca-Cola and Fanta beverage companies.

    3. System Franchise or Business Format


    This type of franchise has a concept where franchisees present products as a package to consumers, such as KFC, Dunkin Donut, McD, etc.


    Advantages of Franchise


    Advantages of Franchise


    1. Business Management Has Been Built


    In contrast to building your own business from scratch, the franchise system has ready and more mature business management. The franchisor will provide the opportunity to open a franchise because the business he is running is considered mature and can expand more broadly. 

    Not only that, franchise businesses usually have a good reputation with sustainable management and business strategies so they don't hesitate to expand through franchising.

    2. Trademarks Already Known to the Public


    Generally, a franchise business is a business that is well known by the public and has its own consumers or target market, so when you decide to become a plan, you don't need to think about marketing strategies or competitor analysis anymore.

    3. Cooperation That Has Been Built Since the Beginning


    If you buy a franchise, you can benefit from the cooperation that was previously built by the franchisor. For example, collaboration with raw material suppliers or suppliers to marketing and advertisers, with good cooperation between franchise owners can usually provide support in the form of marketing financial management training to resource empowerment.

    4. Chances of Success Faster


    Franchise business has a faster chance of success than you have to build a business from scratch. The capital costs incurred are also more measurable because the supply of resources to marketing has been carefully considered by the franchisor.

    5. Easier Financial Management


    You no longer need to think about finances because in general, franchise businesses get business capital through sufficient investors, so that in terms of finance and franchise marketing, you don't need to bother anymore. In a franchise business, the financial management system has been set by the franchisor, so you don't need to bother with financial management, such as building a new business.

    What to consider when investing in a franchise?


    Things you need to consider before building a franchise business. In setting up a franchise business there are several things you need to consider related to the risks and readiness.

    1. Company Business Model


    The first thing to consider when you want to run a franchise business is the company's business model. This is because when you buy a franchise license, you have indirectly adopted the company's business. Therefore, make sure that the business model is quite relevant to the current target market.

    2. Franchise Business Financial History


    Another thing you need to do is to do research first and avoid companies that offer sudden profits, you should review and check again how the company's financial journey is.

    3. Competition Level


    If you want to buy a franchise business license from a large company, then consider the competition again. Companies that are already large must have other franchisees competing so it is not impossible if you will experience many challenges when opening a franchise. For this reason, first consider whether the company you choose has business products that are quite relevant.

    A business model like this franchise can be an option for those of you who want to start going into the business world. With the various advantages mentioned above, you can also start learning how a franchise business works and add a little experience to be used as your guide when you want to open a business from scratch.

    What is a franchise business examples?


    What is a franchise business examples

    1. Jco Donuts


    Jco Donut is a company that is increasingly booming because of its different types of donuts from most donuts. The presence of Jco Donut in 2005 was even able to shift Dunkin Donut which had become the no.1 brand for donuts. Jco is a franchise company in Indonesia which has many outlets spread across Indonesia and abroad.

    2. CFCs


    CFC (California Fried Chicken) is a local franchise product using the name of a city in the United States. Now, CFC already has quite a lot of branches, starting with 20 outlets in 1996 and now expanding overseas, such as Malaysia and Singapore.

    3. Baba Rafi Kebabs


    Kebab Baba Rafi is an Indonesian food franchise that is quite successful in Indonesia. Kebab Baba Rafi now has 60 outlets outside Indonesia such as Sri Lanka, Bangladesh and the Netherlands. In 2009, Kebab Baba Rafi penetrated into neighboring countries, namely Malaysia. Now, Kebab Baba Rafi has up to 1200 branches in Indonesia and abroad.

    If you plan to open a business from scratch, the most important thing you need is business capital. Look for business capital from well-known fintech lenders that are licensed and supervised by related bodies so that you don't choose the wrong path in starting a business. Keep trying and good luck...


    Conclusion


    A franchise is a form of partnership in which one party obtains the right to utilize the original owner's intellectual property. The parties involved in a franchise are the franchisor and also the franchisee.

    So, the franchisor is the party who gives the rights to other people to be able to utilize their intellectual property. So, franchisees can sell products with the same brand as the franchiser.

    A simple example is that coffeeshop X has several branches in an area. However, these branches turned out to be owned by different people. Well, that's what is called a franchise business. In developing its business, the franchisee is the party who is burdened with two types of costs, namely initial costs and royalty costs.

    Initial costs are costs to pay for the construction of a business premises and also the purchase of capital resources (raw materials) in accordance with predetermined provisions.

    Meanwhile, royalty fees are fees paid by the franchisee to the franchisor. This fee is taken from the gross income of the business and is paid every month. Royalty fees are typically 5 to 15 percent of the franchise's gross revenues.

    Apart from being responsible for costs, franchisees are also obliged to respect and comply with the regulations and specifications set by the franchisor.

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