What Is A Franchise?
Updated: Sep 19, 2022
What’s the difference between franchising and licensing? Do I need to buy equipment to start a franchise? How can I find the best franchise opportunities? You’ll learn all this and more by reading this comprehensive guide on what is a franchise.
We’ll cover how to select a franchise that works well with your personality, how much it costs to start, what type of skills you’ll need, and how much money you can make in the long run.
You don’t want to miss out on this essential resource, so get started right now!
What Is a Franchise Anyway?
It can be easy to think of franchising as something you can just dip into—if you’re curious, buy a franchise and give it a shot.
But there’s more to consider than just an initial purchase. Franchises are a great way to enter into business ownership, but like any business model, there’s not one size fits all.
When you choose what is the best franchise for you, take stock of your expectations and needs as well as how willing you are to buy in, both financially and emotionally.
Learn what is required for success in your industry (for example: start-up costs vs. ongoing fees). Some franchises require a lot of start-up capital while others charge set up fees or monthly maintenance fees or both.
Why Open a Franchised Business?
There are many advantages to opening a franchised business. If you're going to invest in starting your own business, it makes sense to get as much help as possible from someone who already has experience doing what you're about to do.
The major benefit of starting a franchise is that all of the research, planning and training is done for you so you can focus on running your new business and making money!
So, if you want a shortcut to success in business ownership, buying into an existing franchise network may be a great idea.
You'll pay royalties (which means giving up some of your profits) but you won't have nearly as much work-up-front as if you were building something from scratch.
What Kind of Franchises Are There?
One of your first questions might be, What kind of franchises are there, and which do I want to pursue? Good question. Franchises can vary quite a bit in size, scope and investment level (which we’ll get into below).
In general, you can split franchising into two categories: business format and product-based.
Business format franchises give you a proven way to run your business; they offer their franchisees training, materials and so on.
Product-based franchises require you to invest in inventory that you must sell—think pizza shops or ice cream vans.
The Pros and Cons
Franchising can be a good opportunity, but it’s not right for everyone. Before you take out loans and spend significant amounts of money on licenses, make sure you know what franchising entails.
For some people, it might be a great way to build a business; for others, it might be an ill-advised choice that forces them to give up too much control over their livelihood.
While researching franchise opportunities, ask yourself whether you have what it takes to run your own company or if you would prefer to work for someone else.
Do you want all of your income coming from one source or do you want more flexibility in where and how you earn money?
Are you willing to pay thousands of pound/dollars in startup costs and ongoing fees, or do those costs scare you away from franchising as an option?
The answers will help guide your decision about whether franchising is right for your situation.
How Do I Get Started as an Entrepreneur with One of These Companies?
Once you’ve found a franchise company that fits your interests and has a proven business model, you can ask more questions to figure out if it’s right for you.
For example, how long have they been around, what other companies are in their network, what financial support is available to me while I get started, and how much capital do I need to invest?
If you like what you hear from them on these points—and if your research shows that others are happy with their franchise experience—consider an in-person meeting.
If nothing about it seems like a good fit for your personality or goals at first glance, keep looking until you find something that does!
Case Study: Starting Up
Owning a franchise, on paper, is pretty straightforward. Franchisors want to protect their reputation and will require you to sign a contract agreeing not to open more than one location.
They’ll also usually provide training and support—or in many cases, require you to attend training programs before starting operations—and ask for an investment of anywhere from £/$30,000 to £/$100,000 in exchange for use of their name and system.
Then they’ll help you find a good location and even assist with financing if needed.
What is a Franchise - The Bottom Line
A franchise is a type of business model in which an established company provides a potential entrepreneur with an exclusive license to use its brand and system for selling a product or service.
The franchisor, or parent company, provides training, advertising and other resources for the franchisee so that he can operate his own branch of the business.
In exchange, he makes regular payments to his franchisor based on sales and sometimes a percentage of his profits.
This means that if you buy into a franchise, you get everything you need to open your own business without having to spend your own money -- but it also means that you become legally obligated to make payments every month, year after year as long as you're running your franchise.
And if things go south -- bankruptcy is not an option.