A franchise is a contract base business where the franchisor provides the franchisee. Franchisees use trademarks, logos and company names,s, etc for selling products. The franchisor allows the manufacturing and marketing of goods.

Summary

  • A franchise is an agreement between two independent parties’ the franchisor and franchisee.
  • To use a franchise, the franchisee needs to pay a one-time fee to take a franchisee.
  • Franchising is a good idea for growing your business.

How does franchising work?

Franchising is a marketing strategy and is currently a very popular tool used for business expansion purposes. When a company wants to increase its business distribute the franchisee to different cities.

A franchise is like a joint venture between the company wanting to expand the business(franchisor) and another party (franchisee) that wants to benefit from the franchisor’s brand name, trademark, logo, and business working model.

A franchisee act as a dealer. The franchisee pays some commission or a one-time fee. During the dealership, the franchisor is specified in the contract. The fee is called a royalty or licensing fee.

Examples of Franchise

The franchise business model is popular in highly competitive industries. Like the fast-food industry, video rentals, and automotive services.

McDonald’s, Dairy Queen, Taco Bell, Denny’s, Jimmy John’s Gourmet Sandwich, Subway, 7-Eleven Inc., etc., are top franchises worldwide.

Small businesses in the US use the franchising model to grow into national chains and gain a foothold in other locations such as Europe, Canada, and China.

Franchising Requirements and Regulations

  • The agreements typically include three categories of payment and the amounts the franchisee needs to transfer to the franchisor.
  • The franchisor is paid by the franchisee for training, equipment, and business advisory services. In the end, the franchisor receives royalties every month.
  • The franchise rule, which is published by the FTC, represents a legal disclosure conveyed to a potential buyer of the franchise from the franchisor.

Role of Franchisor

The Franchisor is required to provide business support to the franchisee by providing training, equipment, and knowledge to the staff to understand their role in a franchised business and possess the right skills to maintain the image of the franchisor.

The Franchisor does not take part in the day-to-day running of the franchisee’s business and the franchisee is free to hire, compensate, and set employment standards for its business without requiring input from the franchisor.

Role of Franchisee

The franchisee uses the franchisor’s brand name, logo, signs, and trademarks in a prominent location within the business premises.