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FRANCHISE

1. What is Franchising?

Franchising is the result of a long-term and continuous business relationship arising out of privilege. Concessionaire of a product or service grants the concession right to the second party to carry out business and provides know-how for the management and organization of the business for a certain period of time and within certain terms and conditions. Franchising is a contractual relationship between two independent parties. Franchising began in the United States, the first place of creation and implementation of the system. There are approximately 60 business lines working with this system. These include sectors such as car rental, car service products, business help services, duty vehicles, clothing and shoes, construction decoration, computer, cosmetics, retail stores, education, food, health products, household appliances, dry cleaning, fast-food, hotel management and eating house, etc. Diversification is rapidly increasing especially in the service sector. Franchise, which means concession, is an English word. The word "franchise" is derived from the French word "affanchir" that is enfranchising. Franchisor is the party that has the product, service or knowledge and tried, proven and successful brand, name and gives the right of sale-distribution or operation for a certain price. Franchisor is the founder and long-term protector of the franchising system consisting of itself and its individual franchisees. Franchisee undertakes the right and obligation to use Franchisor's trade name and / or service mark, know-how, business and technical methods, system and other industrial and / or intellectual property rights for a direct or indirect cost. It shall undertake with the commercial and technical support to be continuously received within the period and scope of the written Franchise Agreement signed between the Parties for this purpose. The amount Franchisee pays to Franchisor consists of an initial fee, Franchisee Fee, which is paid in return for the right to use the name, brand or system. The amount Franchisee pays to Franchisor consists of an initial fee paid for the right to use the name, brand or system “Franchisee Fee” and annual turnover and wages paid as a percentage of profit at the rates specified in the agreement “Royalty”.

2. What are the types of franchising?

Franchising system can be examined in two groups in terms of applications. It can be National and International Franchising depending on the country in which the system is applied. It is possible to classify Product and Brand Franchising and Business System Franchising in terms of opportunities offered.

A. What is National and International Franchising?

The Franchising Agreement is a National Franchising if done within the boundaries of a country, between cities or regions, and it is International Franchising if done between two countries.

B. What is Brand and Product Franchising?

Product and Brand Franchising started in the USA in the form of an independent sales relationship between the manufacturer and the seller. The vendor company tries to identify itself with the manufacturer company within this framework. Image merger with the producer is achieved as a result of the marketing of certain products in independent companies with similar appearance. What is essential in this type of franchising is the use of a particular brand or trade name. In addition, the granting company has the right to a wide and continuous inspection of the counterparty, including management and administration. In some simple matters, the franchisee may also enter the production phase. Automobile and truck dealers, gas stations, soft drink producers are the most typical examples of this type of franchise.
 
C. İşletme Sistemi Franchising'i nedir? 

Another type of franchising is business franchising. Here, Franchisee and Franchisor include not only products, services and brands, but also all marketing and production activities within the operating system as a whole. In very simple terms, this type of franchise can be described as "Selling Mind." Hotels, restaurants, retail stores, rental and consulting services are included in this classification. In recent years, the growth rate of the franchising system has been higher than other franchises. The four basic elements of the "Business Format Franchising" agreement, which can be called the franchising system, are:

  • Franchisor permits Franchisee to use a specific name or brand.
  • There is an ongoing audit on the franchisee during the contract.
  • During the contract, Franchisor provides certain assistance and services to Franchisee.
  • The amount of "Royalty", which is the form of payment of the price for this privilege, is determined as periodic payments.
3. What are the benefits of the franchising system for the franchisee?

Benefits of the franchising system in terms of franchisee: o It is possible to use the techniques and procedures of the operating system together with a brand that has been tried and proven before.

  • National and International standards and quality are obtained with the brand.
  • Continuous customer and business opportunities are provided by well-known brands.
  • Franchisors provide training services and expert staff support to Franchisee.
  • The company uses franchise techniques to find, hire and train qualified personnel.
  • With the support provided in financial, commercial and personnel matters, technical functions are emphasized and the chances of success are increased.
  • The risk and business problems that small businesses will face are minimized by acting in partnership with Franchisor.
  • The financial and legal advisors of the franchisor are used.
  • Franchisor's continuous research and development efforts are utilized.
  • It is possible to use scientific techniques in the establishment stage of the enterprise and in the selection of the location of the enterprise.
  • It is possible to provide financial support from leasing, etc. sources at the establishment stage.
  • Advertising and promotion costs are saved.
  • Franchising system eliminates the loneliness of the entrepreneur and reduces the risks of starting a business.
  • Payments to the franchisor are initially less than the sum of error charges for an untested business, although more than the initial investment of a new job.
  • Standard management, accounting, sales and stocking functions are possible for enterprises.
4. What are the inconveniences of the franchising system for Franchisee?
  • Hurts creativity.
  • There is an obligation to comply with certain rules and restrictions imposed by Franchisor.
  • In the absence of adequate research at the contract stage, a significant portion of the profits go to the franchisor.
  • Extensive use of the product subject to the contract increases the entrance fees.
  • According to the agreement, it is possible to purchase some of the products that are obligatory to be purchased from the franchisor at a cheaper price.
  • In case of gaps in contracts, it is possible to operate the system in favor of the franchisor.• Franchisor's insecurity to Franchisee limits the rights and opportunities provided by the contract. In this case, disputes arise between the parties.
5. What are the benefits of the franchising system for the Franchisor?
  • Payments to be made by franchisor enterprises increase the profit of the franchisor without making new investments.
  • Provides growth and development with minimum cost.
  • As a result of growth and increase in business volume, productivity and economy increase.
  • Further sales of goods and services increase Franchisor's ability to obtain loans from financial institutions.
  • There is a faster and selective distribution.
  • It is possible to control the distribution system comfortably.
  • Fast and continuous flow of information about the market is provided.
6. What are the drawbacks of the franchising system for Franchisor?
  • Entrance fees to the system are sometimes not collected.
  • There are difficulties in collecting the cost of goods and services, etc. provided to the franchisee enterprises.
  • Franchisee businesses expect the benefits of the system unilaterally from franchisees. This undermines the understanding of cooperation.
  • A successful and proven brand or name may be damaged by the wrong activities of it franchisee. Strict supervision is essential to prevent this.
7. What are the things that should be considered when choosing a franchise?

The information provided by the franchisor firm is clearly defined in the USA. There is no definite definition in our country. There is a common association of franchisees and dealers in the USA, “American Associated of Franchisees & Dealers”. The association has stated the issues that should be considered while choosing franchisors under seven headings.

A- The Franchisor company should first try to sell its goods and services.

Some companies prefer to sell franchises first. Money from shops that are sold quickly in the short term may be more attractive than the percentages of the revenue from the shops in the long term. In this case, the franchisee may soon find himself/herself alone. World's most recognized and reliable chain stores came to our country at the beginning. The bed of roses created by these should not mislead the investor. The chains that quickly disappear after forming franchisees can appear in our country as in any country. The franchise candidate should consider this point well.

B- Franchisor should first use its Franchisees as marketing channel.

The franchisors who sell most of their sales in their own shops and sell their goods through different channels such as kits, catalogs and TV should be preferred. If Franchisor is in need of Franchisee in marketing, it is natural to establish better relations.

C- The produced goods or services should have a ready market.

Being a ring of the chain may not bring the expected output in the case of a market-saturated product or a customary service that is usually offered by independent business. For example, a cozy restaurant or hotel atmosphere is only found in a small place run by a person you know. You will inevitably find the same “impersonal” environment when you enter the chain.

D- The brand should be well known and recognized.

The most important factor that directs the investor to buy a franchise is the brand. It should be emphasized that who knows this brand and what they think about it. It should not be decided to buy a franchise without learning the opinions of different consumer groups.

E- The franchisor company should be able to offer adequate training, continuous support and effective marketing.

F- Relations with the franchisees of the franchisor firm should be good.

Franchisor’s knowledge should be questioned in terms of the functioning of the system and the adequacy of the education.

Whether the lawsuit filed against the franchisor, the reasons and the results of the lawsuit should be learned.

G- The details of the sales and costs of the shops operated by the Franchisee or Franchisor should be clearly explained. 

8. What are the obligations of Franchisee and Franchisor?

A- What are the obligations of Franchisor?

The franchisor must meet the following requirements:

  • It must successfully run it for a reasonable period of time and at least in one example business before turning a business system into a franchise chain.
  • It must have the name, brand and other distinctive features of the chain or have the legal right to use it.
  • It must be able to provide the individual Franchisee with initial training and continuous commercial or technical support during the agreement.

B- What are the obligations of the individual Franchisee?

The individual franchisee must meet the following requirements:

  • It should make maximum efforts to develop the franchise business and to protect the common identity and reputation of the franchise system.
  • Franchisee should provide business information to facilitate the determination of its performance and financial status for the efficient management of the Franchisor. The Franchisor and / or its representative shall be allowed to work in the business records of the individual franchisee at reasonable times at the request of the Franchisor.

C- What are the ongoing obligations of both parties?

The parties should be honest in their relations with each other. The franchisor must notify the franchisee in writing of any breach of the agreement and allow reasonable time for remedial action. The parties should resolve their complaints, worries and disputes with sincere and good faith, honest and reasonable direct contact and negotiation.

D- What are the payment methods of "Franchisee Fee" that is the cost of franchise?

Payments to Franchisor may be in various ways for the brand and system to which Franchisee is entitled to use.

  • Collective payment made by conclusion of the contract (dawn payment/Lump Surn Fees)
  • Continuous and periodic payments (Royalty)

Royalty payments are usually calculated on a gross turnover and determined as a percentage of turnover. Rarely can be determined as monthly fixed wages. Franchisor may require additional payments for the support services it provides. This payment is intended to cover the costs incurred by the franchisor for the services rendered. The manner in which payments will be made (cash, credit account, letters of credit payments, etc.) is regulated under this heading of the contract.

9. What are the payment methods of "Franchisee Fee" that is the cost of franchise?

Payments to Franchisor may be in various ways for the brand and system to which Franchisee is entitled to use. Collective payment made by conclusion of the contract (dawn payment/Lump Surn Fees). Continuous and periodic payments (Royalty). Royalty payments are usually calculated on a gross turnover and determined as a percentage of turnover. Rarely can be determined as monthly fixed wages. Franchisor may require additional payments for the support services it provides. This payment is intended to cover the costs incurred by the franchisor for the services rendered. The manner in which payments will be made (cash, credit account, letters of credit payments, etc.) is regulated under this heading of the contract.

10. What are the application stages of the franchising system?

The franchisor company should first prepare an introductory file to the franchisee. This introductory file consists of the information package about the main company and form. This includes personal and financial information about the information package. In addition, Franchisor has three manuals that it is obliged to give to Franchisee. The first one of these books is the book explaining the main in-house operation; the second one is the in-house operation book with rules that franchisee has to comply with; and the last book is explaining business information, including all information on how to operate franchisee. Know-How is also given in addition to this business book. The franchisee should be very careful when choosing the franchisor. It must analyze well in terms of personal and financial aspects. Franchisor does the same research for franchisee at the same time. Activity Zone is determined mutually. A feasibility study is carried out taking into account the area of activity determined and this feasibility study is provided to the franchisee. The result of this feasibility study is the decision stage for the franchisee. The contract is signed after the franchisee decides. This contract should be very detailed and cover every aspect. Payments of the franchisee should begin after signing the contract. The payment plan is given to the contract team and the payment plan varies on a per company basis. The unit preparation of the franchisee begins after these agreements. This unit preparation includes the decoration of the store, the training of the franchisee and its staff. Some franchisors undertake unit preparation and prepare everything on a turnkey basis. The advantage of turnkey preparation is that it prepares for the main company to minimize costs and guides the franchisee. The franchisee starts to work after the preparations. A support member from the franchisor company accompanies the franchisee to help during this start period.