A franchise is a license that grants the franchisee (an entrepreneur or a company) the right to use the business model, trademark, and commercial solutions of the franchisor (the company owning the franchise). The franchisee purchases the rights from the franchisor and signs a franchise agreement.
Buying a franchise is an ideal option for entrepreneurs who want to start their own business but are unsure where to begin or fear they lack knowledge and experience. Successful companies benefit from franchising by rapidly scaling their business with minimal costs and low risk. Additionally, it enhances brand recognition and provides regular payments from franchisees.
Which Companies Sell Franchises?
A franchisor is a company with an effective business model. They have utilized creative ideas, introduced new technologies, improved customer service, and more. The company invested in developing and promoting the business, made its trademark recognizable, and established a good reputation.
Once the company proves its business model’s effectiveness, it can transform it into a franchise. A franchise package is developed, including manuals for all business operations, product recipes, customer service standards, and other materials.
How to Buy a Franchise?
To buy a franchise, a franchisee needs to take several steps:
- The franchisor offers the franchise on special platforms. If a prospective franchisee is interested, they submit a preliminary application and fill out a questionnaire.
- The franchisor reviews the application and assesses whether the applicant has sufficient funds to start the business. The professional experience and qualifications of the candidate are evaluated to some extent because poor performance can negatively impact the brand’s reputation and the franchisor’s income.
- If the potential franchisee meets all requirements, a meeting is scheduled where they receive a copy of the franchise agreement.
- The franchisee should thoroughly review the agreement and consult a lawyer experienced in franchise matters.
- Once the agreement is reviewed and signed, the franchisee pays the initial franchise fee as specified in the agreement.
How Does a Franchise Work and What Rights Does It Grant?
When a franchisor sells a franchise, they grants the franchisee the right to use their trademark, business methods, know-how, and goodwill. The rights are granted in the form of a license:
- Manufacturing: Grants the right to produce the franchisor’s products and sell them under their trademark.
- Retail: Allows opening a store or kiosk to sell a specified range of products under the franchisor’s brand.
- Service: Grants the right to provide services to clients under the franchisor’s brand.
To ensure the franchisee can practically use the rights specified in the license, they are provided with technical documentation, work instructions, and know-how (recipes, commercial and organizational experience, production secrets, etc.). They also receive manuals for all business operations.
How Does a Franchise Work – Video
Watch the suggested YouTube video about how franchises work, their advantages, and potential drawbacks on our portal.
Conclusions
A franchise is a license that grants the franchisee the right to use the franchisor’s business idea, trademark, brand, commercial achievements, and business methods. When the franchisee buys a license, they obtain the rights to use the franchisor’s business. They receive tools that allow them to organize and open their business quickly, and the franchisor’s brand recognition helps them achieve stable income.
FAQ About Franchises
A franchise is a license that grants an entrepreneur the right to use all the benefits specified by the franchisor. They can legally use the trademark, brand, business idea, business methods, recipes, customer service standards, etc.
To buy a franchise, one must pay an initial franchise fee and then make monthly or quarterly royalty payments (a service fee for using the franchisor’s trademark, brand, business idea, know-how, and business methods). The amount of the initial fee and royalties is specified in the franchise agreement.
An entrepreneur acquires the legal right to own and open a franchise immediately after signing the agreement and paying the initial franchise fee.
