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What is a franchise?
Key Franchise Terms and Definitions
Why Franchising?
A franchise is a legal agreement that allows an independent business owner (franchisee) to trade using the trademark, trade name and business format of the franchisor (owner of the original business) in return for a fee and ongoing royalties or support fee.
The franchisor also provides to the franchisee a complete turnkey business package which enables them to operate the business in a specified territory after training. The franchisor will also provide ongoing support and assistance to the franchisee in return for an ongoing royalty or support fee.
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Franchise – A franchise is a legal agreement that allows an
independent business owner (franchisee) to trade using the trademark, trade name and business format of the franchisor (owner of the original business) in return for a fee and ongoing support fees or royalties.
Franchise Agreement – The legal agreement between a franchisor and the franchisee which allows the franchisee to trade using the trade name and business format of the franchisor. It also dictates how the franchise must be run and stipulates the various obligations of each party. The franchise agreement will also cover areas such as selling the franchise and franchise territory.
Franchise Prospectus – A document or brochure which provides an overview of the franchise proposition.
Franchisor – The franchisor is the owner of the original business who wished to expand through the sale of franchises.
Franchisee – An independent business owner who acquires the right to trade using the trademark, trade name and business format of the franchisor.
Franchise fee - A fee paid by the franchisee to the franchisor. This fee pays for the training in the business methodology of the franchisor and the right to use their trademark, trade name and business format in a defined territory. This fee may also cover the cost of stock, equipment and other items. This will be defined in the Franchise Prospectus and Agreement.
Franchise Territory – Most franchises will have a pre defined exclusive trading area. This means that no other franchisees can trade in your area and it also prevents you from trading outside your own franchise territory.
Royalty Fee / Support Fee - A continuous ongoing fee paid by the franchisee to the franchisor for their ongoing support and assistance. This could be a monthly fee and / or a royalty fee which is usually a percentage of the revenue earned by a franchisee. This will be defined in the Franchise Agreement. Some franchises will also stipulate that a marketing fee must be paid to cover brand advertising and promotion which benefits all franchisees.
Trademark / Trade name - A brand name or symbol used to distinguish a particular product or service which must be registered.
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Franchising is a fantastic way
to start and run your own business – it provides you
with an opportunity to earn a high income but with the support
and backup of the franchisor behind you.
A Franchise Reduces
The Risk of Failure
Starting a new business always carries a risk – new businesses
are vulnerable. The degrees of vulnerability vary depending
on:
•
Knowledge
•
Skill
•
Financial resources
•
Relevant abilities
Many who start up their own business lack some or all of these
qualities. Many fail because they cannot learn quickly enough – before
the money runs out. 80% of new businesses starting today will
fail within the first five years.
With a franchise this risk is substantially reduced – because
you are buying the experience and expertise of the franchisor.
This will also stop you making the same mistakes that they
have made during their trading life.
And because you become part of successful business you will
be able to take advantage of their buying power and link into
the strong relationships that they have developed over the
years.
Other Franchise Benefits
As we said right at the beginning of this section a franchise
provides the opportunity to earn a high income working for
yourself but with the training, support and experience of an
established business behind you.
You are selling an established product or service with a
turnkey business plan and format for you to operate. This includes the brand,
systems and processes, lead generation and marketing assistance plus help with
raising finance if required.Back to Top
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