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A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.
Technically, the contract binding the two parties is the “franchise,” but that term more commonly refers to the actual business that the franchisee operates. The practice of creating and distributing brand and franchise system is most often referred to as franchising.
There are two different types of franchising relationships. Business Format Franchising is the type most identifiable. In a business format franchise, the franchisor provides to the franchisee not just its trade name, products, and services, but an entire system for operating the business. The franchisee generally receives site selection and development support, operating manuals, training, brand standards, quality control, a marketing strategy and business advisory support from the franchisor.
While less identified with franchising, Product Distribution Franchising is larger in total sales than business format franchising. Examples of traditional or product distribution franchising can be found in bottling, gasoline, automotive and other manufacturing industries.
The primary advantages for most companies entering the realm of franchising are capital, speed of growth, motivated management, and risk reduction. However, there are many others as well:
The most important advantage of franchising is that it allows you to achieve multi-unit expansion of your business.
Expansion requires capital for development and operation of new locations. Franchisees will be investing their own capital, including savings, loans, and 401K rollovers, to fund the development and establishment of new franchised locations.
Expansion requires skilled, trained, and motivated individuals to manage and operate new locations. Franchisees supply the managerial talent needed for new locations and, most importantly, they have a vested interest in the success of the business.
Franchising is all about expansion and replicating business modules, sources of supply, and uniformity of operations. Franchising allows for increase in purchasing power and achieving economies of scale with suppliers and vendors. These can even extend to marketing franchisor and franchisees pool resources and establish common funds.
Franchising essentially creates a new business while benefitting the franchisor at the same time. When franchisees come on board and sign a franchise agreement, they pay an initial franchise fee and also a periodic royalty fee that is typically a percentage of gross sales.
PFOC eliminates the need to search for an all-encompassing accountancy and finance firm. Our corporate headquarters in Johar Town, Lahore provide practical and efficient solutions to all your accounting and financial needs.
The skilled tax and finance professionals at PFOC, work diligently to make your life simpler by reducing financial stress and making business models more lucrative and efficient in accordance with up-to-date regulations.
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