Beefburger in a takeaway carton

What is a franchise?

There are many definitions of franchising but in general a franchise involves the granting of rights, to an individual or group, to market a company’s goods or services within a certain territory or location.

The person who grants the licence is called a franchisor and the person who obtains the licence is called the franchisee. The agreement means that the franchisee is allowed to use all the elements of the successful franchised business which can include the corporate image, registered and unregistered trade marks, know-how and show-how, products, registered and unregistered designs, marketing and promotional material and in some instances, patented technology.

The franchisee has the obligation to pay the franchisor certain fees and royalties in exchange for these rights. The franchisor has the obligation to provide these rights and generally support the franchisee. In this sense, franchising is not a business or industry, but a method used by businesses for the marketing and distribution of their goods and services. Both parties have a strong vested interest in the success of the business and keeping customers happy.

Although many people associate franchising with fast food businesses, there are hundreds of different types of business available today, in all types of industry from cleaning and maintenance to health and fitness and automotive related services and products.

The Singer Sewing Machine Company is credited with introducing the franchise system back in the 1850’s, selling licences to entrepreneurs to distribute patented sewing machines throughout the US. The hamburger restaurant chain Wimpy was one of the first Business Format Franchises to set up in the UK in I955.

There are many advantages to entering into a franchising arrangement, these include;

  • Limiting risk - The business is not a new one but a tried and tested venture that has been successful elsewhere
  • Training - The franchisor usually provides extensive training and advice
  • Corporate image - The brand, trade marks, designs, have already been protected and established in the marketplace
  • Savings in time - The business model is already in place and you can focus on running a successful business
  • Economies of scale - It will be cheaper to obtain supplies when you need them
  • Customers - May already be familiar with the brand and trust it more readily

However there are a few disadvantages, which include;

  • If you are successful, you could find yourself paying the franchisor more
  • You may be limited about what promotions and advertising you can run
  • You will not have full control over the development of the business
  • The franchisor may grant other franchises in your vicinity
  • There are no guarantees that the business will work

Some franchises are excellent, some good and others poor. Before making any firm decisions or financial commitment, you should carry out extensive research.

There is no magic formula to becoming a successful franchisee or indeed of starting and running your own business, but certain attributes may help, these include;

  • Energy and commitment
  • Being able to deal effectively with people
  • Prior business experience
  • Knowledge and interest in your chosen industry

As any businessman will tell you there is no shortcut to business success. There may be more certainty in running a franchise than starting your own, original business idea, but it is not a guarantee. A lot of hard work is required for any business to succeed.