Published February 4, 2008

What is a Franchise? Definition & Meaning

Franchising offers an excellent opportunity for you to be in business for yourself. When you hear the word "franchise" you probably think of fast food restaurants such as Burger King, McDonald's or Subway. But the truth is franchising is so much wider than that.

In simple terms, franchising is where a successful business format is replicated. This involves developing all the systems and procedures the franchisor has found to be most successful. Anyone joining the franchise will be expected to operate the business using these tried and true systems.

There are franchises available in almost every business category that you can think of, and across all price ranges. In addition, because franchising has such a low failure rate, especially when compared to starting a business from scratch, a franchisees chance of success is extremely good.

Compared to starting your own business from scratch, franchising can provide a relatively safer route into self employment. The franchisor has established a tried and tested path through the maze, and will have eliminated many of the mistakes that are often made when starting a business. It is this experience and system that you are paying for when you buy a franchise.

While franchising is a safer route into becoming an entrepreneur, it is not just a question of signing up, paying your money and being successful. The franchisor will not do your work for you and cannot be expected to. What is supplied is a proven format, a brand name, support and guidance. It will still be your hard work and skills that make your business successful.

As a franchisee you will have access to market knowledge, established name awareness in the business sector that you will be operating in, training and marketing help. You will often take part in and contribute to national advertising campaigns which would otherwise be outside your reach.

Financially, you will pay the franchisor an initial franchise fee and the costs of establishing the business, including any equipment, facilities and supplies necessary, together with the costs of operating the business until it is cash flow positive. Once established, you will normally pay the Franchisor a monthly payment based on your sales. This is known as royalties or monthly management fees. Effectively this is where you are paying for the ongoing support of the franchisor and his team. As the royalties are based on your revenues, it can be clearly seen that it is in the Franchisor's interest to help you succeed.

A successful franchise relationship is like a partnership. It combines your talents with the experience and knowledge of the franchisor.

With franchising, you are in business for yourself not by yourself

Franchisors not only have sound training programs, but also knowledge of financial requirements, marketing, competition & buying contracts - knowledge that might take you years to collect on your own.