Put simply, a franchise is the right or licence granted by a company (franchisor) to an individual (franchisee) to market and/or trade products and services in a specific area or territory. Once a franchise has been purchased, the franchisee must comply with strict guidelines and rules regarding the business in order to maintain brand consistency.
How do UK franchises work?
Well-known UK franchises, such as Subway, have proven processes and they offer investors the option to run their own store or unit as a franchisee. The franchisee will be responsible for their store, staff and products, but they operate using the name and systems put in place by the brand and franchisor.
What is the difference between a franchise and a franchisor?
The franchisor is the business that grants licenses to franchisees. When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a joint venture between franchisor and franchisee. The franchisor is the original business.
What are the most popular types of franchising in the UK?
This is, by a fair margin, the most popular type of franchising in the UK. As the name suggests, Business Format Franchising allows the franchisee to make use of the business format laid down by the franchisor. The franchisor may have spent years, along with considerable resources, in the development of the said business format.
What is a simple franchise definition?
In the most simple form of the word, a franchise is a right or a license that is sold by the franchisor to the franchisee. The franchisor is the person who owns the company name, and the franchisee is an individual looking to buy a branch of the company and trade under the company name.
What are the origins of franchises?
One of the very first instances of franchises can be traced back to Isaac Singer, who started mass-producing Singer sewing machines in the 1860s. He began with creating repair and servicing licenses for local merchants and then created licenses for salesmen too. And thus, a franchising revolution was born. It took a while for franchising to catch on to the mainstream, but as soon as massive companies such as Coca Cola and Pepsi started using the franchising structure, there was no going back!
What is a franchise, and how does it work?
The way in which a business franchise is structured usually differs slightly from company to company. There will be the initial fee of purchasing the license, and from then on, the franchisee will be required to pay regular royalties and perhaps other fees to the franchisor. The franchise agreement will list the partnership details, including the period of time that the contract is valid for (usually 5 to 20 years with the option to renew should everything go according to plan.)
Is owning a franchise right for you?
As you can tell by the previously listed advantages and disadvantages, there are many pros and cons to owning a franchise, and it certainly isn’t a one-stop solution for budding business owners.
Is buying a franchise better than starting my own business?
If you want to express your own business ideas and innovations, then starting your own business is probably better for you.
What is manufacturing franchise?
Manufacturing – A manufacturing franchise agreement allows the franchisee to manufacture and sell the franchisor’s products while using their logo, brand name etc.
How long is a franchise agreement valid?
The franchise agreement will list the partnership details, including the period of time that the contract is valid for (usually 5 to 20 years with the option to renew should everything go according to plan.)
How Does Franchising Work?
The inner working of any franchise business is simple yet complex at the same time. While the underlying idea, that of allowing two businesses to work for profit in association, may seem straightforward, the intricacies involved at the operational, economic and legal fronts are anything but simple.
What is Not A Franchise?
The most common example of such business models is the model of expansion. Typically, such models rely on finding local distributors that are not involved in the business to any extent that exceeds the buying and selling of products for a fee.
Should You Run a Franchise Business?
On our website, we have compiled all the resources that a would-be-franchisee may want to keep handy. You can also visit these pages to learn how to acquire , run, finance and sell a franchise.
What is business format franchising?
A common example of Business Format Franchising is that of a gym franchise business. A well-established, well-known gym business licenses its brand name, popularity and goodwill to a franchisee, along with trained fitness instructors, supervisors, equipment and confidential know-how. The franchise pays an upfront franchise fee, along with the peripheral costs and starts booking profits as the authorised regional location for the said fitness brand. The franchisor offers continued support and help to the franchisee, while also charging quarterly royalties. While the franchisor gains from an ongoing stream of income and improved brand exposure, the franchisee gets to benefit from the established business strategies.
What is franchising in business?
Franchising is a business arrangement between the franchisor and the franchisee. This arrangement allows the franchisee to use the brand, products, services, know-hows, technology and other business facets developed by the franchisor to book profits. In the simples of forms, franchising allows both the parties to benefit from a mutually agreeable business relationship.
What is the difference between a franchisor and a franchise?
The ‘franchisor’, in this case, is the business that provides the business know-hows, products, brand or services. The ‘franchisee’, on the other hand, is the business that uses the said value as provided by the franchisor to run a sales-point in the franchisor’s name.
Why is franchising important?
Franchising allows them to use to good effect the potential of motivated individuals without having to invest huge sums of money. On the other hand, small businesses that are light on resources can harness the popularity, goodwill and proven strategic ideas of bigger businesses to further their own interests. This two-way utilisation of resources is what makes franchising an indomitable business phenomenon in this day and age. But exactly what is franchising? How does one define ‘franchising’? Is there more to it than meets the eye?
What are the different types of franchises?
There are three types of franchise: 1 Product: This is when a franchisor gives a franchisee permission to sell a product using their logo, trademark and brand name. 2 Manufacturing: The franchisor authorises the franchisee to manufacture their products and sell them using their logo, trademark and brand name. 3 Business: This is without a doubt the most popular form of franchising. The franchisor licences their brand to a franchisee with regulations surrounding how the business is managed.
What is product in franchising?
Product: This is when a franchisor gives a franchisee permission to sell a product using their logo, trademark and brand name.
What is franchising agreement?
According to the International Franchise Association (IFA), franchising is defined as an agreement or license between two legally independent parties which gives: A person or group of people (the franchisee) the right to market a product or service using the trademark or trade name of another business (the franchisor).
How many brands does franchising have?
Franchising has since grown into a vast industry which now has nearly 1,000 brands in a multitude of different sectors. Long-gone are the days when it revolved around cars and catering, and nowadays its eclectic mix of businesses includes everything from pet grooming to homecare agencies, from beauty salons to recruitment companies.
When did franchising start?
Franchising grew rapidly during the Second World War, propelled by companies looking to expand quickly like soft drinks giants like Coca-Cola and Pepsi. This was the beginning of business-format franchising as we now know it; offering a turnkey package from franchisor to franchisee in many instances. In the 1950s and 1960s, the popularity of franchising really took off in the UK, in tandem with huge growths in population, economic output and social change. An early UK practitioners was food giant J Lyons & Co., who franchised the hamburger chain Wimpy in 1955, as well as ice-cream brands Lyons Maid and Mr Softee in the 1950s.
What is franchise in business?
Put simply, a franchise is the right or licence granted by a company (franchisor) to an individual (franchisee) to market and/or trade products and services in a specific area or territory. Once a franchise has been purchased, the franchisee must comply with strict guidelines and rules regarding the business in order to maintain brand consistency.
What does "be in business for yourself but not by yourself" mean?
Be in business for yourself, but not by yourself. When you succeed, we succeed. Be your own boss; we’ll help you get there. These quotations from franchisors convey the idea that even though you work for yourself, franchising is first and foremost about partnership.
What is a franchise?
Franchising is when an established business allows a third party the right to operate using their trade-name, either through their manufacturing, distribution or sales channels. This is usually in return for a one time franchise fee, plus a percentage of sales revenue.
Who offers franchising opportunities?
A number of the world’s biggest businesses offer franchise opportunities, and see them as an important part of building their brand. They come in a range of different sectors, from retail and banking through to catering and hospitality companies.
Where can I start a franchise?
Franchise opportunities are available in a variety of locations. In fact, if you can represent to a business that there is an opportunity in your area, you can start a franchise almost anywhere.
What next?
If you feel like franchising is the right option for you, the next step is to start researching which options are available to you.
What is product distribution?
In a product distribution franchise, the franchisor allows the franchisee to sell their products, and licenses their logo for use, but does not provide any ongoing support to the business. Essentially, it works as more of a supplier/seller relationship, but with additional branding.
What is business format franchise?
Business format franchise. An agreement whereby a business (franchisor), licenses another business (the franchisee) to trade using their branding, business model and a number of other assets, whilst also supplying additional support and guidance as part of the package. This is the most common type of franchise.
What is manufacturing franchise?
Manufacturing franchise. A manufacturing franchise is licensed to produce goods and services using the franchisor’s brand name. Food and beverage companies often operate in this way (selling syrup concentrate to a bottling company, who then sells it on after mixing, for example), as do some wholesalers.
What is the advantage of franchising?
The franchisor has already established the brand’s name and trademark. The franchisee effectively buys into some of that success and helps to expand the business. This is one of the many advantages of a franchising agreement for both parties .
What is franchise agreement?
The franchise agreement is governed by a business contract and defines everything under the franchising operation for an agreed period. This agreement covers fees, royalties, training, support, marketing assistance, brand value, and much more.
What is franchising business?
Franchising focuses on business systems and support. With a healthy franchise agreement and a functional relationship in place, they are a great way to gain invaluable entrepreneurial experience and venture into a new industry.
What is the difference between a franchise and a product?
A job franchise is used by somebody starting a small business, whereas a product or distribution franchise involves large products – think vending machines and even cars. The business franchise format is the most common, where the franchisee is permitted to use the franchisor’s trademark.
Why is franchising so popular?
It saves you the trouble of carrying out market research, building brand awareness, and developing unique business methods because everything has already been done for you. These days, franchising proves to be a phenomenally popular way of doing business in many industries, including: Automotive. Cleaning.
How many franchising companies are there?
From its humble beginnings, franchising has grown into an incredible and valuable industry. There are more than 1,000 different franchising brands in an impressive range of industries. The sector is only growing, and franchising companies employ more people than ever before.
What is the most important aspect of franchising?
Regardless of the definition of franchising, there is one core aspect of any franchising system that is more important than any other: the relationship between the two parties.
What makes a franchisee successful?
If you take on all the responsibilities listed above, you’re likely to be a highly successful franchisee. In order to successfully run your very own franchise, you also need to be able to learn new skills and apply them to your franchise. As we’ve explained, you will take on a multitude of roles, from that of financial advisor, to trainer, to customer service assistant, so you should be prepared to absorb lots of new information and throw yourself into the role. The franchisor outlines the brand standards, but it is your responsibility to manage the day-to-day running of the franchise.
What is a franchisee business?
In essence, the franchisee operates a business under the franchise ’s brand. From the outside, it will appear the same as any other of the business’ units, but it is run by a separate franchisee. They have to follow guidelines set by the franchisor and, the majority of the time, the franchisee needs to pay an ongoing royalty fee to the franchisor.
Why is franchising a good idea?
Franchising is a great way for entrepreneurs who don’t have heaps of experience in a particular industry to run their own business, as they will receive ample guidance. The franchisor will already have established a successful business model and will probably have got any costly mistakes out of the way.
What happens if you don't have a franchise agreement?
For this reason, the franchisor will have drafted a manual and list of operating standards, which you will be expected to adhere to. If you don’t, you’ ll risk damaging the reputation of the entire franchise, and will be in breach of the franchise agreement.
What is a franchisee?
A franchisee is someone who purchases the right to use an already existing company’s brand name, trademarks, business model and proprietary knowledge from the franchisor. The franchisor owns the brand and sets the terms for licensing a franchisee to sell goods or services under the existing brand name.
Do franchisors have to select their own workforce?
Although the franchisor has authority over many of the aspects of your franchise unit, you’ll have to select your own workforce. It is in your interest to hire the best people you can find. Not only should they be able to do the job well, but they should also have a personality that matches the business’ values.
Do franchisees have to pay royalties?
To compensate for the franchisor’s expertise and support, franchisees must pay an initial franchise fee and ongoing royalties, which is usually a percentage of gross revenue. However, compared to starting a business from scratch, opening a franchise generally requires much less capital.
How to invest in a franchise?
Here’s generally what the process of investing in a franchise entails: The prospective franchisee makes an inquiry, either via a franchise directory website or to the franchisor directly. The franchisor will send prospect information or a brochure covering the business or a Franchise Disclosure Document.
What is the investment fee for a franchise?
Investment Fee. The main investment fee is the franchisee fee, which is what you pay when joining a franchise. Including in the franchise fee is the permission from the franchisor to use the brand, name, logo, products, business model and services and replicating them with your business.
What is royalty fee?
Royalty fee: The royalty fee is an ongoing amount that is paid by a franchisee during the length of a franchise agreement in return for use of the franchisor’s systems, trademark and more. This ongoing fee - sometimes referred to as a management services fee - can sometimes be a flat fee, but is more often than not a percentage of the sales you receive from the franchise. Ongoing service fees are generally paid weekly or monthly to the franchisor, and the amount can vary, but it usually is around six to eight per cent.
What is a franchise agreement?
A Franchise Agreement is a legally-binding document signed by both the franchisee and franchisor, and must be fair and comprehensive. It is unique to the franchise and is not simply a prospectus but a bonafide legal document.
What is franchising a business?
Franchising is essentially having a business template or framework to work from, and adopting it. The general concept involves the franchisor (the original business owner and typically the founder of the enterprise) sharing the concept of the business with franchisees, who will benefit from running a company attached to an established brand, with a proven concept and consumer loyalty.
Why is franchise business so popular?
The franchise model is extremely appealing as there are business and investment opportunities catered to all budgets and lifestyles. Many budding entrepreneurs relish the opportunity to purchase a business that requires very little overheads or staff, which makes it a cheaper investment proposition.
Why do businesses adopt franchise models?
A tried-and-tested concept: The reason why a business will adapt a franchise model is because the business owner firmly believes that their concept can be easily adopted and perform well on a broader scale. A support system: Franchise businesses are renowned for offering a stable and professional support system.
What Is a Franchise?
A franchise is a type of license that grants a franchisee access to a franchisor's proprietary business knowledge, processes, and trademarks , thus allowing the franchisee to sell a product or service under the franchisor's business name . In exchange for acquiring a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual licensing fees .
What Are the Risks of Franchises?
Disadvantages include heavy start-up costs as well as ongoing royalty costs. By definition, franchises have ongoing fees that must be paid to the franchisor in the form of a percentage of sales or revenue. This percentage can range between 4.6% and 12.5%, depending on the industry.
How Does the Franchisor Make Money?
Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must purchase the controlled rights , or trademark , from the franchisor in the form of an upfront fee. Second, the franchisor often receives payment for providing training, equipment, or business advisory services. Finally , the franchisor receives ongoing royalties or a percentage of the operation's sales.
What is franchise contract?
Franchise Basics and Regulations. Franchise contracts are complex and vary for each franchisor. Typically, a franchise agreement includes three categories of payment to the franchisor. First, the franchisee must purchase the controlled rights, or trademark, from the franchisor in the form of an upfront fee.
What does a franchisor receive?
Finally, the franchisor receives ongoing royalties or a percentage of the operation's sales. A franchise contract is temporary, akin to a lease or rental of a business.
How long does a franchise contract last?
It does not signify business ownership by the franchisee. Depending on the contract, franchise agreements typically last between five and 30 years, with serious penalties if a franchisee violates or prematurely terminates the contract.
When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product?
When a business wants to increase its market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a joint venture between franchisor and franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor's goods or services under an existing business model and trademark .
What Is A Franchise?
The Origins of Franchising
- The origins of franchising as it is now defined can be clearly traced to one man: Isaac Singer. After the US Civil War in the 1860s, Singer had achieved the ability to mass-produce his famous sewing machines, but had no economically viable way of repairing and maintaining them across a country as geographically vast as the US. He began to license out servicing and repairs to local …
Franchising Today
- Franchising has since grown into a vast industry which now has nearly 1,000 brands in a multitude of different sectors. Long-gone are the days when it revolved around cars and catering, and nowadays its eclectic mix of businesses includes everything from pet grooming to homecare agencies, from beauty salons to recruitment companies. The authoritative annual research into t…
Franchising: A Definition
- According to the International Franchise Association (IFA), franchising is defined as an agreement or license between two legally independent parties which gives: 1. A person or group of people (the franchisee) the right to market a product or service using the trademark or trade name of another business (the franchisor). 2. The franchisee the righ...