What Is Franchising? How Does It Work?

Steve Hockett, President
FranChoice

Simply put, franchising is a way for a business to expand beyond its original owners. The most common form of franchising is a business format franchise where the franchisor contributions certain elements of the business and the franchisee contributes certain elements. The power of franchising is realized through the combination of the contributions from the two participants. Franchisees pay initial franchise fees and then ongoing royalties for access to the format the franchisor has developed and for ongoing enhancements to the system.

The franchisor contribution will include the brand / trademark of the concept; it will include the proven business system (commonly called the operating system); and the franchisor will provide the initial and ongoing support as the franchisee builds their business.

The franchisee contribution involves the management skills to run the business day to day using the franchisor provided brand and system; and the franchisee also contributes the capital to fund the opening and continued operations of the business. Finally, the franchisee brings a level of desire and interest in having the business succeed that is essential to franchising – and the focused desire is something the franchisor can’t replicate on their own.

There is a contract – called the Franchise Agreement – signed by both parties that governs the relationship between the franchisor and franchisee and explains in detail the responsibilities of both sides. The franchisor is required to provide a generic copy of the Franchise Agreement early in the investigation process, and this contract will provide a roadmap for the duration of time the agreement is effective.

Labels: Franchise Opportunity