What is a Franchise?

Before any meaningful discussion of franchises can begin, it’s important to first define “franchise.” A franchise is a business or set of business practices, usually associated to a brand name, which is sold to an individual to operate in a geographic territory.

The main advantage for the buyer (the franchisee) is brand recognition. From the outset of their business venture they know customers will be familiar with the product. The franchisee will not have to spend considerable advertising and marketing dollars to promote and familiarize consumers with the name of the business.

The extent to which the franchisor will assist the franchisee in operating and/or promoting the business depends on the type of franchise that is purchased, and the stipulations of the franchise agreement.

Essentially there are two types of franchises sold. The first is referred to as a “product and trade-name franchise.” These are businesses established to sell a particular brand name product. A car dealership is the most common variety. When the franchise owner purchases the rights to sell the product, he/she is not purchasing any operational procedures. This gives the franchisee the freedom to run the business as he/she deems best. The franchise owner can choose everything from the design of the building to the style of operation.

The second type is a “business format franchise” which entails the sale of not only the brand, but operating procedures, management support, training and facility design. First time business owners are attracted to the business format franchise precisely because it takes so much guessing and experimentation out of the mix. The owner can be confident that he/she is purchasing a proven business model that has a greater possibility of succeeding.

Franchise "Creature Feature" Writer