Franchising is where one party – a franchisor – grants another party – the franchisee – a licence, for a specified period of time, to operate a business that the franchisor has established using the name and brand of the franchisor subject to the franchisor’s quality control measures in return for a fee. Franchisor must have established a business which has been proven to be successful and franchising is a way for the franchisor to expand without using its own cash and employing staff directly. For a franchisee, it is an opportunity to run their own business but instead of starting from scratch, the franchisee has a business model that they can follow with support from the franchisor.
Franchising is essentially an opportunity for the franchisee to rent the franchisor’s business model for a limited period of time within a specified territory. It is true that franchisees are their own bosses but they must operate within the parameters of the business model and they will be subject to restrictions both during as well as after exiting the franchise relationship.
A prospective franchisor will need to ensure that they have taken appropriate advice and have taken all relevant steps to protect their intellectual property rights, such as obtaining a registered trademark.
A franchisor will also need a franchise or operations manual. This is a core element of the franchise business and is essentially a step by step guide which somebody who has never worked within your business can follow and replicate what you do. However, an operations manual alone will not be enough and, as a minimum, most franchisors have some sort of initial training programme as well as additional training which will be delivered throughout the life of a franchise.
Franchisees will expect a level of ongoing support and a franchisor needs to be in a position to meet this expectation. Although it is for the franchisor to set the expectation in the first place, the franchisor will then need to have the infrastructure to deliver on it.
The biggest difference between licensing and franchising is that in franchising franchisees are subject to quality control measures. This means that the franchisor must be clear on what these are, how franchisees will be assessed and then actually enforce system standards.
Franchising is about building relationships and any franchisor’s success will be largely down to choosing the right people as franchisees. For a prospective franchisee, investing in a franchise means that they are buying into an existing brand and a business which has been proven to be successful.
