Franchising is a business transaction where the franchisor grants to the franchisee the right to use its trademark as well as certain business systems and processes, to produce and market a good or service according to certain specific parameters.
The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains
- Immediate name recognition,
- Tried and tested products,
- Standard building design and décor,
- detailed techniques in running and promoting the business,
- Training of employees
- Ongoing help in promoting and upgrading of the products and
- Possible references for new customers.
Structure of franchising arrangement
Franchising structure is usually governed by a franchising agreement and the major components of the franchising agreement are as follows:
- Objective: the purpose and scope of franchising opportunity;
- Confidentiality: provisions for the parties to protect technology know-how trade and commercial secrets disclosed during the venture;
- Royalty and franchising fee: quantum of franchising fee and royalty to be paid by the franchisee to the franchisor based on the business plan;
- Assets and Manpower: provisions relating to the assets and manpower that each party is required to contribute, supervise, train and manage in the franchising arrangement;
- Intellectual Property Ownership: determines the ownership of any intellectual property (usually held by the franchisor);
- Management of the day to day operations: responsibilities of each party and the procedures to be followed in the day to day franchising operations;
- Disputes resolution: specific dispute settlement and resolution mechanism to resolve disputes that may arise between the franchisor and the franchisee; and
- Exit Strategy: provisions on how the franchising arrangement may be terminated.
How ASC Helps?
- Project Assessment and Strategy briefing: ASC is the best Franchise Company in India will need to understand the franchising opportunity criteria, including product/service offerings /capabilities, quality of human capital, business size, and other must-have of an ideal franchisee or franchisor, as the case may be (target), through a strategy briefing session with the client’s management team. Knowledge thus gained would serve to define an extremely detailed and focused search profile of the target.
- Research: Based on the briefing session, an in-depth economic, organizational, and market-specific scrutiny will be carried out to draw up a list of potential targets (“Target List”) fitting the franchising criteria set by the client. The initial long list of target companies will be discussed with the client to screen the best and suitable possible targets. (A shortlist of target companies would be generated as a result of such discussions).
- Solicitation and Pursuit: A specific approach will be made to each of the shortlisted targets at top management levels to see if they are willing to discuss and negotiate the broad parameters of a possible value-chain partnership. The identity of the client will not be disclosed to any short-listed target unless they have shown willingness to discuss and have signed confidentiality agreements with ASC. Mutual presentations and any other relevant information will be shared at this stage, but carefully balancing the interests and intentions of the client.
- Target List: ASC will prepare an ideal target profile, which will carry weights and or any other grades against each shortlisted target for the client’s management to pick up the final target(s). ASC will arrange for a visit by the client’s operational team to the selected target companies or vice - versa and arrange management presentations from the target companies to select the ideal target, subject of course, to the operational, financial and legal due diligence.
- Business Plan & due diligence: ASC can assist in the preparation of the joint business plan and can facilitate and participate in the financial/operational and legal due diligence, once a non-binding Letter of Interest has been exchanged between the target and the client.
- Negotiations: ASC will also prepare, facilitate and participate in the negotiations between the client and the target company until an agreement in principle has been reached (e.g. Letter of Intent / Term-Sheet) / and until the final signature of the franchising opportunity agreement and the closing of the transaction.