Franchising is a business model in which a franchisor grants a licence to franchisees allowing them to trade under the brand name of the franchisor.
The franchisee will sign a franchise agreement and pay a franchise fee in order to operate their business under the franchisor brand. The agreement is usually for a pre-determined period of five years or more which is then reviewed when the term of the contract is reached.
Each business is owned and operated by the individual franchisee. However with franchising, the franchisor retains overall control of the quality and standards of the business.
The initial franchise fee generally goes towards the costs of business set-up and training. Ongoing franchise payments are generally required. These are usually based on a percentage of annual turnover, sales or contribution or mark-ups on supplies. Franchisors often charge an additional marketing levy which covers national and regional marketing initiatives.
In return, the franchisor has an obligation to support the franchise network, notably with training, process, product development, advertising, promotional activities and with a specialist range of management services.
Many people choose franchising as it allows them to become their own boss while offering the peace of mind of a supported business model. Franchising gives the franchisee security and support both whilst starting out in their new career and on an ongoing basis. Franchisors commit to offering suitable training and ongoing support as well as the backing of an established brand.
However it is worth noting that the franchising business model requires significant input from the franchisee in terms of hours and work to result in a successful business, particularly during the first few years after opening.