About Franchising

What is a Franchise?
A franchise is a legal business relationship between the owner of a business system (which can involve trademarks, trade names, logos, etc) and a person or group that wishes to use the system or identification in their own business. It can be a plan of distribution under which an individually owned business can be operated as though it were part of a larger chain, with the chain having certain products, systems or designs of benefit to the potential buyer of the franchise.

It basically controls how a business is to be contracted between the two parties involved. These two parties are the Franchisee (the person or group coming into the franchise) and the Franchisor (the person or group that owns the franchise).

What is the concept of Franchising?
There are many definitions of franchising. They all describe a relationship where one party (the franchisor) grants to another party (the franchisee) the right to operate a business selling products or services produced or developed by the franchisor under the franchisor’s business format.

The concept is a form of licensing where the owner of a franchise that has products or services markets their business through another party (the franchisee) using the system or products or intellectual property which are owned by the owner. Franchising is based on trust between the two parties.

Quite simply, the Franchisor provides the business expertise that would not normally be available to a Franchisee. This expertise can include marketing know-how and plans, management advice, financial help, premises, location and design, systems and training, etc. What the Franchisee contributes to the operation is their entrepreneurial spirit and a desire to succeed, plus of course the capital injection by way of purchase of the franchise.

Sometimes the party that is using the franchise in partnership with the owner is given the right to have an exclusive area in which to run their franchised business.

It’s not a new concept
Franchising is not a new concept. In French it means to be ‘free from servitude’. Today it is an opportunity for someone to own their own business, with the help and partnership of a company that already owns a product, system or trademark that would benefit that new business owner.

It is a great method of marketing and distribution because a business can expand by granting someone or another company the right to operate a business which in fact is a carbon copy of theirs.

In the main this business would be run in a different country or area within a country with that person given exclusive ownership or trading rights. These rights include approval to use the company’s name, know how, trademarks, brand and business systems etc.

The new user of the franchise carries on business using the methods and systems of the franchisor and in exchange the new owner pays the franchisor an initial fee and ongoing royalties. This is where franchisors make their profit.

The profit for the Franchisee comes from their own income and fees and in return for the franchisor providing a variety of services to assist and encourage the growth of the franchisee’s business a royalty is paid to the Franchisor.

Naturally the more sales (and therefore profit) the franchisee’s business makes, the higher the royalty fee going to the franchisor. This method of growing a business in countries around the world is mushrooming as the advantages of having a franchise operation become clearer to new business owners.