What exactly is a franchise – how do they work, and how can you secure one?

Well known fast food restaurants aren’t all owned by the same person, believe it or not. This is why rules, and prices, can vary from place to place. However, they all represent the same brand. However, they are franchises of the brand.

What exactly is a franchise - how do they work, and how can you secure one? Photo of a Starbucks coffee cup.
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Have you ever wondered how your favourite burger joint or coffee shop manages to have the same delicious menu and consistent quality no matter where you go? Believe it or not, they aren’t owned directly by the same person. It’s all thanks to something called a franchise! But what exactly is a franchise? Let’s break it down in simple terms.

What is a franchise?

Think of a franchise as a special kind of business arrangement. It’s like a partnership between two parties: the franchisor and the franchisee. The franchisor is the company that owns the brand, products, and business model. This could be a big name like McDonald’s or Subway. The franchisee is the person who buys the right to operate under the franchisor’s name.

How does it work?

Imagine you love burgers and dream of owning your own burger restaurant. Instead of starting from scratch, you decide to buy a franchise from a well-known burger chain. This means you can use their name and business system. Here’s how it typically works:

Franchise agreement: You sign a contract with the franchisor, agreeing to follow their rules and standards. This agreement usually covers things like using their brand name, recipes, marketing strategies, and operational guidelines.

Initial investment: You pay an initial fee to the franchisor for the rights to use their brand and business model. This fee can vary widely depending on the popularity of the brand and the industry. The more popular the brand, the higher the fee.

Training and support: The franchisor provides training to help you learn how to run the business successfully. They also offer ongoing support, including marketing assistance, supply chain management, and operational advice.

Setting up shop: With the franchisor’s help, you find a suitable location for your restaurant and set it up according to their specifications. This could mean following a specific layout, decor style, or menu design.

Running the business: Once everything is set up, you operate the business following the franchisor’s guidelines. This includes using their approved suppliers, maintaining quality standards, and participating in marketing campaigns.

Paying fees: In addition to the initial fee, franchisees typically pay ongoing fees to the franchisor. These can include royalties based on sales revenue and marketing fees for national advertising campaigns.

Benefits of franchises

Proven success: Franchises often come with a track record of success. You’re essentially buying into a business model that has already been tested and proven to work.

Brand recognition: By operating under a well-known brand name, you benefit from instant brand recognition and customer trust. You’re guaranteed custom.

Training and support: Franchisors provide extensive training and ongoing support to help franchisees succeed. You’re not left to face the challenge alone.

Easier financing: Banks and lenders are often more willing to finance franchise businesses because they have a lower risk compared to new startups.

In simple terms, a franchise is a way for aspiring entrepreneurs to own and operate their own business while benefiting from the support and resources of an established brand. It’s like having the best of both worlds. The independence of owning a business and the security of being part of a successful franchise system.

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