If you have stumbled across this page and don’t know what a franchise is yet, the great news is that you are about to learn about another option for your career. It can be seen as an easier route into self employment and can potentially increase your chance of business success.
It is also a good investment opportunity for someone who is looking to buy into a reliable business model with a proven track record.
Let’s start by taking a look at a definition taken from the International Franchise Association website:
The Definition
“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 the 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, traditional or product distribution franchising is larger in total sales than business format franchising. Examples of traditional or product distribution franchising can be found in the bottling, gasoline, automotive and other manufacturing industries.”
This is all very important to understand, but let’s break this down a little to help you get to grips with the main benefits and risks. Here’s what you should expect to find from a good franchise brand:
A clearly defined business operating model
A set of standards to follow that help you understand what will deliver maximum customer satisfaction
Common startup mistakes can be avoided by following the operating model
Guidelines on site selection, tools and general setup required reducing time spent making decisions in the early stages of set up
The Franchisor is responsible for developing the model as times change, allowing you and your teams to focus on delivery.
Possible negative
You may feel your creativity is restricted. That said, most brands welcome development ideas from their franchisees.
Detailed Training & Support
Learn how to set up and establish the business from individuals who have done this successfully time and time again
Mentoring from peers from with the franchise network
Ongoing support and advice when you need it from employees who know the business, rather than external consultants who need to learn the business first
A well established brand
Customers have more trust in a brand that they have seen before
A stronger presence online
Your business looks professional from day one
A brand name that has been proven to connect with an audience
Possible negative
You will need to stick to brand guidelines. Failure to comply could put you in breach of contract terms.
An established supply chain and route to market strategy
Reduced costs on services and products due to head office bulk buying
No need to test the market when someone has already found the most successful route.
Possible negative
If you dislike a service or product being used you may not be able to change to another supplier or worse, you may have to pay twice.
Part of a network with a common goal
From franchisor to other franchisees, your success is their success, so they will be very willing to support you
When one member of the team learns everyone learns, meaning that contracts become more robust and all successful routes to market are found
Business ownership isn’t such a lonely place in a franchise
Possible negative
If you invest in a brand and don’t get on with the Franchisor or their team, you still have a franchise agreement in place and things could start to become difficult.
Summary
So in summary, the Franchisor licenses its trade name, i.e. the brand, and its operating system to an individual or group with a defined territory or location, who will then operate the business according to the signed franchise agreement.
The franchisor provides the tools, systems, processes, training, support and guidance, as well as maintains brand control for the benefit of the many.
The investor or franchisee, in exchange, pays the franchisor a franchise fee (usually one-time initial fee) and a continuing fee (known as a royalty or Managed Service Fee) for the use of the franchisor’s trade name and operating methods.
The franchisee is responsible for the day-to-day management of its independently owned business and benefits or risks loss based on their own performance and capabilities.
Investing in a franchise or becoming a franchisor can be a great opportunity. However, before you select any franchise investment and sign any franchise agreement, do your research, understand all aspects of the franchise system and what is being offered. Make sure you get the support of a qualified franchise lawyer.