Simply put, a franchise is a right granted to an individual or group to market a company’s goods or services within a certain territory. It is a method of expanding one’s business and distributing goods and services through a licensing relationship. The license is acquired by a party (the franchisee) to allow them have access to an ongoing business’s (the franchisor’s) proprietary knowledge, processes and trademarks in order to allow the franchisee sell a product or provide a service under the franchisor’s name. In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing fees.
One of the biggest advantages of purchasing a franchise is that the franchisee has access to an established company’s brand name, meaning that the franchisee does not need to spend further resources to get their name and product out to customers. There is also a general belief that businesses secured through franchise are more likely to survive their first three years of operations compared to companies that are not franchised due to the years of stable structure and market the franchisee would naturally get from operating a franchise.
Franchises are a popular method for people to start a business, especially for those who wish to operate in a highly competitive industry. Examples of industries where franchise is popular are the fast food and automobile industries.
Until recently, franchising was uncommon in Nigeria. The earliest forms of franchising in Nigeria involved product marketing mainly of petroleum products (Texaco, Mobil, Agip, Total, Elf, etc.), automobiles (Toyota, Peugeot, etc.) and beverages (Coca-Cola, Pepsi, etc.). There has, however, been a significant growth in franchising in the country especially in the fast food sector (KFC, Barcello’s, etc). Franchise has steadily become understood and accepted as an attractive business model by Nigerian entrepreneurs.
In other countries, such as South Africa and the USA, there are specific laws regulating franchising. However, in Nigeria, there are currently no specific franchise laws. Presently, franchise relationships are governed by the following:
- Trademark, Patents and Industrial Design legislations.
- National Office for Technology Acquisition and Promotion (NOTAP) Act
- Copyright laws
- Contract laws
There are many advantages of buying a franchise. Some of these advantages are:
- Corporate Image – The corporate image and brand awareness of the company is already established. Consumers are always more comfortable purchasing items from a familiar name or company they trust.
- Traning – The franchisor usually provides extensive training and support to the franchise owner
- Saves time – Since the franchise company already has a business model in place, the franchisee can focus on running a successful business.
However, before selecting any franchise investment and signing any franchise agreement, it is advisable to do ones homework, research the company, understand what the franchise system is offering and consult with a qualified franchise lawyer before making a final commitment.