What is franchising?
According to the text books, franchising is a form of business organisation in which a company which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisors trade name and with the franchisors advice and guidance, in exchange for a fee.

So, five keys points to look out for when considering a franchise:

  1. The franchisor should already have a successful business and should be able to provide accounts and other information to demonstrate this.
  2. There should be a contractual relationship between the franchisor and franchisee, a written legal agreement that outlines the obligations of both franchor and franchisee and describes the actions to be taken in certain situations.
  3. The franchisee should operate under the franchisors existing trade name and logo. Ideally, this will be a registered trademark.
  4. The franchisor should offer advice and guidance to help the franchisee set up and run their business. This may be offered through a written Franchise Operating Manual, formal initial training, ongoing training programmes, regular review meetings and informal get-togethers.
  5. The franchisee should pay a fee to the franchisor. Typically, this consists of an Initial Fee, a Licence Fee and an ongoing Management Fee. The Initial Fee covers initial costs such as training and support. The Licence Fee covers the licence to operate under the trade name and in accordance with the Franchise Operating Manual for a defined period of time. The Management Fee covers the cost of ongoing training and support. Some franchises also have an Advertising Contribution (sometimes called a Marketing Levy), a contribution that all franchisees make to a central marketing fund. Other franchisees may involve additional fees, for example.