What is Franchise?

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.

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 should you become a franchisee?

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. This means franchisees can save time, money and effort, as they don’t have to build a business from scratch. The brand identity, product offering, marketing materials and customer base should already be in existence.

Franchisors can share their years of industry-specific and business-related expertise with franchisees, who should become highly skilled and knowledgeable businessowners in no time. In short, the franchise model allows franchisees to grow under an established brand and provides more security than going it alone.

What’s more, the franchisor will provide ongoing support in areas such as recruiting staff, setting up for launch day and marketing. Franchisees are also normally provided with an exclusive territory, where there are no other units of the same franchise in operation, so they aren’t in competition with a fellow franchisee.

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.