Introduction to Franchising

Franchising is a business model where within a franchisee is granted a license from a franchisor, or existing business, that enables them to run their own operation under the same brand and business model.

There are currently over 930 franchise systems in the UK, with businesses operating in a wide range of sectors. This method of business is as ideal for businesses looking to grow their current company as it is for someone looking to start a business, with something of a safety net as they are building upon an existing brand and trade name.

What is a franchise?

When a business owner forms a company and starts trading, they may wish to expand by adding more locations.

Rather than manage these themselves, they can enter into a binding legal contract known as franchise agreement, which enables an individual to run their own business as part of this existing brand. Rather than having to start their own business from scratch, a franchisee can work under an existing name, which enables the franchisor to expand. The franchisee will normally receive training and ongoing support to maximise the success of the franchise, as it is mutually beneficial for both parties to do so.

Franchise in business - why might you use it?

This kind of business model can be ideal for both franchisee and franchisor.

From a franchisee’s perspective, they are able to walk into what is essentially a ready-made business. The company concept will have been tried and tested, and will have enjoyed an element of success if expansion is being considered. This makes it easier for those who are new to the concept of running a business to get started. Similarly, from a franchisor’s point of view, this method is an easy way to expand an already-prosperous enterprise. Often, established franchises will already have a great deal of recognition, and a respected trading name. They will also offer training skills and programmes to help newcomers break into the business, and can assist with things like raising capital and investment.

The implications of franchising

Each individual franchise is helmed by the franchisee, so they are responsible for the way that specific location is managed and operated. The franchisor, however, remains in control of product offerings, quality control, marketing and advertising campaigns, and the overall standards associated with the trading name.

Regarding cost implications, a franchisee will be liable to pay an initial fee to start-up their own franchise, along with management fees that are payable on an on-going basis. The franchisor is then obligated to provide training and development, and to help with marketing, advertising and promotion to give the franchise the best possible chances of success.