FREE online courses on Franchising Business and You - Franchising Business
and You - Exactly what is Franchising
“Franchising is a process of bottling success and giving it
to other people for use in developing their own successful businesses.”
What do all franchises have in common? All business format or
package franchises share three elements: a brand, a business system and fees.
In every franchise arrangement, the franchisor, the owner and
developer of the franchise system licenses franchisees to use trademarks,
service marks, logos, or advertising owned or developed by the franchisor. In
some franchise systems, franchised businesses are operated using only the
franchisor's brand name. Examples include McDonald's, Burger King, H&R Block,
GNC, Subway and Fantastic Sams. In other franchise systems, the franchised brand
is used in tandem with a trade name which the franchisee establishes. Examples
include Century 21/ABC Real Estate Company, ProForma/John Smith Business
Products or Tri-State SuperCoups.
The common brand enables all participants in the franchising
system to benefit from the advertising and goodwill generated from the operation
of each unit whether operated by franchisees or the franchisor.
Every successful franchise organization involves a method of doing business
which is common to all franchisees and the franchisor. The business systems may
include standardized products, methods of preparing or manufacturing products or
food, or methods of performing services, standard appearances of business
facilities, standard signage, reservation systems, accounting systems, inventory
control and merchandising policies, etc. In some franchise organizations, the
franchisor's business system governs virtually all aspects of operating a
business. In other organizations, the franchisor's business system may be less
comprehensive, giving the franchisees greater independence in how they deal with
issues not directly related to the core franchise program.
In all business format or package franchise programs,
franchisors directly or indirectly collect payments from franchisees for the
right to use their brand and to participate in their systems. Fees usually are
designated as initial fees, ongoing royalty fees, service fees, license fees
and/or advertising fees. Other fees may be charged for services provided to
franchisees.
Other Characteristics of a Franchise
Franchising always involves independent entities. The
franchisee is an independent contractor owning his own business. Franchisees
operate their own businesses, are entitled to all profits that are generated,
are responsible for paying their own taxes and their own employees. They are
virtually always required to pay fees to their franchisor, regardless of whether
the franchise or the franchisee's business is profitable.
