What is a Franchise?

In business there are different structures to a company.  You have a single proprietor, joint owners, corporations, and many other choices. One type of business you can own is a franchise.  A franchise is where you make an agreement or purchase a license from the franchisor to use the trademark of that business. 

Any company can become a franchise.  The company owner can elect to sell their rights of the product or service to another.  In a franchise there are specific rules associated with how the franchise can be run.  The franchisee (person buying the license) must adhere to the operating methods of the franchisor (the person allowing the rights to be bought).  Those with a franchise cannot defame, misuse, or mistreat the franchise name, product, or service. 

The franchisee has an obligation to pay fees and royalties to the franchisor in exchange for the rights. Typically there is a fee to purchase the rights, and then each month or year depending on the company royalties are paid out.

As long as the franchisee is paying according to United Kingdom laws the franchisor has the obligation to continue allowing the use of the license. 

Franchising is not considered a “company” per se, but rather a marketing option.  It is the method the company owners use to market and distribute their products or services.  Both the franchisee and franchisor have a vested interest in seeing success of the franchise and the main company.  In this way the franchisor and franchisee both want to keep the customer happy. 

In franchising you have two methods.  The first is business format franchising.  The second is product and trade name franchising. Business format franchising offers a variety of services with the franchises. Usually, you are given the trademarks and logos as well as the complete system for doing business.  The franchisor assists the franchisee with the site selection, interior layout and design, hiring and training, advertising and marketing, and the product supply.  The franchisee will pay an upfront fee and continued royalties to take advantage of the research, development, and support of the franchisor.

Business format franchising has three characteristics.  The franchisee sells the goods or services that meet the franchisor’s standards, the franchisor exercises a great deal of assistance, and the franchisee has to make payments.  For this format restaurants, home based businesses, coffee, pets, and estate agency franchises are offered.

Product and trade name franchising is slightly different.  For product and trade name automotive, petroleum, and soft drink companies are typical.  The franchise also does not include royalty fees.  The franchiser offers trademarks and logos, and national advertising campaigns.  They also supply the product, but not company set up.  The three characteristics of this franchise are that the franchisee sells the goods or services and are affiliated with the franchisor; the franchisor must assist in securing accounts, locations, or vending areas, and lastly there is an initial fee associated with the deal.  Often franchising is a cost effective method of opening your own business because most of the work in gaining loyal consumers and the product is already complete.