An introduction to the basics of franchising

A guide to the basic elements of franchising

What is franchising?

Franchising is the legal agreement between an individual or group (the franchise owner) and a business (the franchisor), which allows the franchise owner to replicate the franchisor's business model.

The franchise owner pays the franchisor a franchise fee, which gives the franchise owner the right to clone the franchisor's business including its logo, services and products within a specific territory for a set time period.

Normally, as part of the franchise agreement the franchise owner will be provided with training and support by the franchisor. The support is usually ongoing and provided in various forms such as through access to the business operation manual and telephone support.

What types of franchise agreements are available?

Most franchise agreements will fall into one of three categories - Master Franchise, regional franchise and single unit franchise.

Master Franchise
A Master Franchise agreement enables an individual or group to own the franchise rights of a business for an entire country. The Master Franchise Owner will usually establish its own franchise units as well as selling franchises to single unit franchise owners. The Master Franchise Owner will often provide training and support to its single unit franchise owners, however this can sometimes be provided by the franchisor.

Regional franchise/Area Development franchise
A regional franchise/area development agreement provides the right to open a number of franchise units within a certain territory. Some regional franchise/area development agreements allow the franchise owner to sub-franchise to single unit franchise owners, while others state that the regional franchise/area development franchise owner must open all franchise units themselves.

Single unit franchise
A single unit franchise agreement gives the franchise owner the right to open a franchise unit within a territory. The single unit franchise owner usually owns and operates one franchise unit, however sometimes a franchise owner will operate more than one.

What are the benefits of owning a franchise?

The benefits of owning a franchise include:

  • The business concept is already proven
  • Training provided by the franchisor
  • Back up and support from the franchisor (usually ongoing)
  • An already established brand
  • A customer base familiar with the products and services provided

What personal skills / qualifications do I need to own a franchise?

Each franchisor has different requirements when recruiting franchise owners, however most generally look for:

  • Determination
  • Motivation
  • Hard working
  • An interest in the business
  • Prepared to follow the business model