What is a franchise?

I was speaking to a couple of friends over the weekend and one of them said to me - "so, okay you've franchised your business. But, what does that mean exactly? How does a franchise work?" She actually had a very good point and I thought it might be a good idea to summarise the main facts.

The most well-known franchise are probably one of the fast food chains i.e. McDonalds or Burger King, but there are well over 800 franchises all around the world. A franchisee (the person who takes on the franchise) runs their own business and they can operate it generally how they want to. BUT, they will also be given a tried and tested system (processes, procedures, training, support, etc) from the franchisor (the person who has franchised the business) to help them to get set up quickly and easily. Because of the system, the franchisee is also less likely to fail in their new business.

As the franchisor has put this model in place, the franchisee will pay a fee to acquire it. For this, they will get access to the system and also the right to operate under the business name in an area (which could be across the country, within a county or simply within a few postcodes, depending on the franchise). In addition, the franchisee will also pay a smaller ongoing fee for additional training and support, usually on a monthly basis.

Franchising is an excellent business model on the whole and can give someone who is thinking about starting their own business a relatively risk free way to do this, without having to go through the hard work of setting up a company from scratch.