There are many international companies around the world. Referring to the operational business opening, in this article I will describe the difference between managing and franchising. If you are an entrepreneur and you are in process to open a new business or if you would like to expand your own brand into a company chain, don´t miss the article: “Difference between manage and franchise”.
Expanding a business is the driving force of the most ambitious entrepreneurs. However, if a brand has the intention to open more locations, it´s time to draw up a business planning, with the purpose to understand which solution can be more suitable: to manage or to franchise?
The suggestion is to be informed about the most important points and the emblem will be solved. Let´s check specifically the difference between manage and franchise a business.
Management contract
The management contract allows the business owner to manage a property with the own brand. In this way, a property owner will take remuneration, while a brand holder will take care of the business.
The business holder is called “operator” and will run the entire operational side of the activities. Hence, the most important decisions will be taken by the owner of the property and not by the operator.
The brand holder is operating on behalf of the owner on contract basis. Nevertheless, the property´s owner will be eligible to earn the majority part of the total net income. Furthermore, is also responsible of all set-up expensive, ongoing costings and wages.
The further responsibilities are all legal risks and the choice and stipulation of insurances.
Although the business owner is allowed to use all brand standard operation procedures, can still amend the guidelines and take the final decision.
Franchise contract
The franchise contract allowed the brand holder to sell the own business license, by a lease agreement. There is a franchising code of conduct, the business operational procedures, name, logo and corporate philosophy which are included in the “lease package”.
The business holder is called franchisor.
The franchisee (affiliate) is an independent business owner, which is purchasing the license on a fee basis. Further, the franchisee will pay for the set-up costs and is eligible to earn the majority part of the revenue and will pay a license fee periodically.
The franchisor has less decision-making power on the daily operational activities and has reduced legal risk. The franchise contract includes the disposal of the brand marketing strategies and support.
With the franchise contract, the franchisor can expand the brand, whereas the affiliate can open and manage the business, by taking advantage of the brand´s name. Moreover, the franchisee can profit from the structured business strategy and corporate governance.
Payment of salaries will be decided in the agreement.
Business owner: should let manage or franchise?
If you are a business owner or a property owner, check the best solution for your future business.
The above-mentioned information are general facts.
If you want to expand your business at international level, take in consideration your knowledge of the bureaucracy in the country. Check properly the location and the profitable opportunities. Get to know the future affiliate or the future property owner.
Open a business: manage or franchise?
If you want to open a business on management or franchise basis, take in consideration the decisional governance, the fees, the brand power: the final choice should depend on the goals you would like to accomplish by investing.
In any case, for both roles: accuracy, awareness and know-how by stipulating and signing the contract is fundamental, choosing a win-win situation.
Written By
Knowess International
Knowess International helps business owners and department heads working in the hospitality and restaurant industries to develop the necessary skills with targeted consulting.
