Franchise Business and Non-franchise Business - Essay Example

Franchise Business and Non-franchise Business A franchise is an arrangement in which the owner of a trademark, trade name or a copyright licenses others to use the trade mark, trade name and copyright in the selling of goods and services. Non franchise business on the other hand is a solo variety type of business that has up-front costs involved during their set up. Franchise business entails a greater amount of input in terms of financial pool, number of employees and sales turnover. The franchise business understudy was a chain style business operator, a real estate brokerage firm where the franchise operates under a franchisor’s trade name and is identified as member of a select group of dealers that engage in the franchisor’s business (Crawford and ODonnell 20). The Block real estate brokerage firm interviewed obtained its materials and supplies exclusively from the franchisor. One of the company’s managing directors interviewed asserted that due to the gap created by the ever growing demand for houses in the urban areas the idea of investing in real estate was born. Since different people have different tastes of houses they are to live in, customer satisfaction is guaranteed by providing information on all types of houses hence linking buyers and sellers. The working population formed the majority of urbane dwellers who needed quality housing facilities formed the benchmark for starting Block real estate brokerage firm (Cross and Miller 56). What started as Block Consultancy in real estate eventually turned into a full fledged firm was attributed to the vision and objectives set by the organization. Initially the organization only depended on one to one meetings with their customers and trying to persuade them to accept their housing brokerage services offered. With the ever bulging population the demand for house increased leading to an increased customer base resulted to the expansion of its operations by incorporating the use of technological advancements like the internet, phones and fax machines. The benefits of franchising the business is that it requires less capital than other growth methods because it allows the company to grow capital invested the individual franchise. It also has rapid expansion programs by enabling multiple units to be opened at the same time. Due to its multiple locations it has a larger market dominance hence having competitive edge over its customers. It also ensures that only qualified managers operate the additional branches. The franchisees have a higher morale to work than the employees because their capital is at risk churning out more profits than the company owned businesses. In addition the franchise business has a greater purchasing power because of the volume discounts that are offered thus having higher operating margins. With more opening of locations the there is increased name recognition because feel more comfortable and secure when visiting the businesses they recognize by name. Also new channels of revenue are created by franchising a business. The founding members pooled their resources by borrowing loans from their retirement benefits funds. The bringing together of these resources formed the basis for inviting other serious investors as the project proved objective in all the spheres (Crawford and ODonnell 22). The banks shied away from their request for loans because the founding members were lacked the required collateral security to secure the loans. With business showing eminent prospects of growth venture capitalists came on board. The firm kick started its operations when venture capitalists invested their money in the business since it was a riskier business investment. This was because the use of venture capital kept them afloat until they had real breakthrough. Since the company executives were willing to share in the ownership of their companies and a pretty large percentage of their profits because this approach lowered their overall risk in plunging in real estate brokerage market (Crawford and ODonnell 27). The franchise ordinarily pays an initial fee or lump sum price for the franchise license. This fee is separate from the various products that the franchisee purchases from the franchisor. In most instances the franchisor receives a stated percentage amount of the annual sales volume of the business done by the franchise. The franchisees may be obliged to contribute a percentage of their gross sales to an advertising fund administered by the franchisor enabling the franchisor to expand their franchise network. Also the franchisee is in the agreement is to pay a percentage of the franchisor’s advertising costs and certain administrative expenses incurred. The franchisor determines the territory to be served by the Block real estate brokerage firm it has the exclusive rights to operate in a certain geographic area. The presence of an agreement is bound to resolve any issues related to conflicts arising from breaching of contracts. Real estate firm ensures a proper representation on the legal front by hiring its legal representatives as the contract must be in good faith and fair dealing. According to Cross and Miller reliably informs us that as part of the franchise agreement the franchisor may require that the business upholds a certain organizational framework and capital structure. A set out standards of operations are paramount for an increase in sales quotas, quality and record keeping but in contrast the he or she may retain the stringent control over training of personnel and administrative aspects of the business. To ensure quality of service delivery the day to day running of the franchise business is left to the franchisee but to some extent the some degree of supervision and control is reserved for the franchisor to maintain the franchise name and reputation. Periodic inspection is done to ensure that the standards are met because the franchisor has the legitimate interest in quality of services. A franchisor can suggest the retail prices of services but cannot mandate them (Cross and Miller 57). Some of the expensive costs accrued include the employee compensation, Income sources like commissions and residential management fees stabilized the firm because they continue in both good and harsh economic times. Some of the fixed expenses in the real estate business can impart either positively or negatively to the business depending on the number of years they have been in the business (Crawford and ODonnell 30). Though some of the costs are variable like commissions, advertising, and listing services the firm generated revenue from many sources. Block real estate firm took a long time to establish because of the many high initial costs involved in setting up the business. The initial start-up costs included the attorney and accountancy fees, cost for office set up and occupancy, promotional material, signs and lock boxes whose prices increase as the security technology is enhanced (Crawford and ODonnell 32). The start up budget covered at least three months of operation after initiating the business. Good management is achieved if employees are properly recruited determining acquisition of highly qualified personnel who are enthusiastic and ready to work as team by putting the right people in the right positions. Real estate sales personnel should be honest, empathy for customers, desire to scale to greater heights (Crawford and ODonnell 37). The sales personnel also continued to pursue professional knowledge in marketing, financing, construction and law to be abreast with dynamics associated with the brokerage business. Real estate business required one to be a professional with proper expert knowledge in real estate services (Crawford and ODonnell 40). Competition is stiff in the brokerage business of real estate as sales associates for them to deliver quality services they must poses proper knowledge and skills. Also to ensure that the firm stays ahead of the pack incentives are offered to the employees to boost their morale. The franchisor strategy facilitates franchisee selection and plays a predominant role as an incentive strengthening mechanism to expand the business ideas. (Maria 190) The business plan enabled the firm to know what to purchase and how it is going to be paid as by acquiring attractive office space and quality furnishings will attracts good sales associates. A business plan is developed in every phase of operation whether the firm will be part of a national franchise or it will be independent. The business plan sets out the number of associates to be recruited which is in tandem with the budget requirements and the average company sales each sales associate generate because the number of sales associates and their method of compensation affects firms income and expenses (Cross and Miller 59). The non-franchise business interviewed was a unit that provided hair dressing services. The business was located in a neighborhood that was densely populated. It provided services that were necessary for the well being of human lifestyle as a luxury hence its marginal profits were less. According to the owner of Harlem hairdressing, other such services were only accessible if the residents moved out of the neighborhood. It was here that the idea of bringing services near to the people was born. This was also attributed to the shift in balance of the economic sector to product industries at the expense of essential service industries (Fleming 8). It started as a family business which was to cater for the aesthetic value of clients by providing hair dressing services, products and treatments. It later grew drastically due to the increased customer demand of hairdressing services for an up to date look. Funding of the business was through savings made by the members of the family. Also the loans acquired from bank helped in pooling the financial resources. Due to the high cost of beauty products the business incurred extra costs when carrying out purchases leading to an increase in charges for service delivery. Time taken before realizing profits was just two months because as soon as the business was established through advertisement and recruitment of qualified staff it started realizing gradual increase in profits. Problems during the early years of establishing the business was overcoming customer trust on the quality of service being offered (Goldsbro 11). Proper managerial skills and experience injected into the business led to the growth and expansion of the business. Employees were effective team members as they knew who was responsible for a certain chore. Also the employees willingly and politely responded to requests made by the clients. Employees showed effective use of a working day by keeping schedule of the required tasks to be carried out basing on priority (Goldsbro 13). Fierce competition and the rise of professional home-care products have made retailing price of services to reduce thus affecting the income of the salon. Business manager has ensured that non-verbal cues are recognized when delivering hair dressing services. Also the clients are helped to reach their buying decisions (Goldsbro 15). Business plan is important as projecting the income and expenses depends on the scope of the operations of the company, the market area, the conditions of the economy and number and productivity of the employees. In summary the franchise firm requires less capital for growth and development compared to the non-franchised business. Another differences between these businesses include, the non-franchised small business is an independent firm with fewer than 15 employees and having sales less than 10 million US dollars a year while franchised business is dependant firm with more than 200 employees with annual sales exceeding 10 million US dollars. A business is franchised to build on size and brand recognition compared to non-franchised businesses which depend on customer contact mode of service. The hairdressing business is owned and managed by one person or two partners while Block real estate brokerage business is owned and managed by more than two people. Majority of small firms like the Harlem hairdressers experience cash-flow problems as they receive minimal financial assistance compared to real estate brokerage firm which has a steady income flow(Ibrahim 49). The real estate firm has more expensive costs like equipment rental, business liability insurance and property insurance while the hairdressing business has fewer and less expensive costs because it serves a small number of customers. Franchised operators like the brokerage firm tend to delegate their routine activities because of specialization and division of labor while the non-franchised Harlem hairdresser cannot achieve that because they have fewer employees. Block real estate brokerage firm provided training for their staff while the non-franchised hairdressing business had no employee development programs because it solely depended on employee expertise. Franchised Block real estate firm exhibited better accounting framework, proper record keeping and are more involved in strategic planning while the non-franchised hairdressing business that though they have accounting records they are not well laid out(Ibrahim 53). The franchise generated its revenue from franchise royalty fees, services provided to franchises, rebates accrued from suppliers, sales and promotional materials and finally training fees charged. The similarities between Block real estate brokerage firm and Harlem hairdressers include the following. Both need qualified staff for better delivery of services because of a highly competitive recruitment procedure. Optimism for growth is exhibited by both businesses by having objective oriented business plans because both have operational rules. Both businesses incurred high initial start up costs which led to low income in the early periods of doing business. Finally both entities motivated their employees by providing them with incentives to boost their morale and increased output to reach the set target goals of the business. In conclusion franchising of a business permits an individual to benefit from the collective power and growth that emanates from the dense franchise network. By sharing a portion of the saving by the franchisee results in increased operating margins and a competitive over other similar businesses. They also provided training for their employees making them to easily adjust to dynamics associated with the business environment but in contrast the owner is highly motivated than the employees in running the business because their capital is at risk. Also the management ability of the franchised firms is greatly enhanced by the input of the franchisor’s knowledge and experience. Research has cited training as the significant advantage offered by franchising as a business. The small non-franchised businesses like Harlem hairdressers should pool their resources together for them to achieve high sales turnover like the franchised Block real brokerage businesses. Also training of employees by the non-franchised is recommended to making them to have an edge over their competitors in the same service industry. Works Cited Crawford, Linda L and Edward J ODonnell. Florida Real Estate Brokers Guide. Florida, 2003. Cross, B Frank and Rodger Leroy Miller. The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global and corporate Issues. Texas: Cengage Learning, 2011. Fleming, Louise. Excel HSC Business Studies. Sidney: Pascal Press, 2004. Goldsbro, Jane. Hairdressing: The Foundations. The official guide to S/NQ Level 2. New York: Cengage Learning EMEA, 2006. Ibrahim, Bakri. "Is Franchising the Answer to Small Business Failure Rate? An Epirical Study." Journal of Small Buiness and Entrepreneurship (2000):Vol 2, 49-53. Maria, Moschandreas. Business Economics. Middlesex: Cengage Learning, 2000. Read More