A guide to the basics of franchising
New to franchising and wondering where to begin? Below is a guide to help you understand more about the franchise industry
The basics of franchising
Franchising is the term used to describe 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.
For a franchise fee the franchise owner will have the right to clone the franchisor's business including its logo, services and products within a specific territory for a limited time period.
Usually as part of the franchise agreement the franchisor will provide its franchise owners with training and support. The support is normally ongoing and is provided in various forms for example through access to the business operation manual and telephone support.
Different types of franchise agreements
There are three main types of franchise agreements - Master Franchise, regional franchise and single unit 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 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.
The benefits of owning a franchise
Franchising is often viewed as the safer option to starting your own business over starting one on your own. One of the main reasons for this is because with a franchise you are buying into an already proven business concept. There are many benefits to owning a franchise business including:
- 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
Is franchising right for you?
There are many different types of franchise owners from individuals starting their own business for the first time to companies that own a portfolio of franchise brands. Each franchisor have their own franchise owner requirements, however there are a few general characteristics that almost all franchisors look for. These are:
- hard working
- an interest in the business
- prepared to follow the business model