What Exactly is a Franchise and How Does it Work?

You're on the lookout to start a business of your own and you've been hearing a lot recently about the popularity of today's franchise industry, but what exactly is a franchise? Do you get to keep your profits and can you run a franchise business as independently as you'd like?

Many people pursue the idea of owning a franchise without being exactly sure of what it entails. For today's entrepreneurs, franchises have proven to be a highly lucrative way of owning their own business, a business already based on a successful company model with existing operational methods already firmly in place.

What is a Franchise?

When you purchase a franchise, you're basically paying for the right to run a business in which the important groundwork (operational system, business model, trademark/brand recognition) has already been done for you. A franchiser (the company that owns the franchise) grants you, the franchisee, a licence to operate the business and use the franchiser's brand, trademark and operating system. For this, you pay a franchise fee, in addition to a royalty fee that usually represents a percentage of weekly or monthly revenues.

Will I Own My Franchise Business?

It's important to understand that, when investing in a franchise business, you're not actually buying the franchise; you're buying the right to operate it. This means that you have a licence to use the name, the business model and the operating system for the length of time specified in your franchise contract. In many ways, it's comparable to renting a home as opposed to owning one; you get to enjoy the use and, in the case of a franchise, the profits without the responsibility of ownership.

What are the Advantages of a Franchise Business?

When you purchase a franchise, you're purchasing into a business where much of the work has been done for you already. The brand has, in many cases, been successfully established and is recognizable, with a successful track record of sales. Additionally, the legal work has been done for you, as well as the advertising; all you have to do is agree to participate in marketing events that the franchiser provides for you.

As a franchisee, you'll be provided with a potentially profitable location and you'll also be provided with your inventory (or, in the case of a service-oriented franchise, a business model to implement). Your equipment will also be provided, as will training. For example, even if you know nothing about the print industry, a reputable printing franchiser will provide a comprehensive course of training to help you succeed in your new business.

Consistency is Key

With any recognizable brand name, consistency leads to a level of consumer trust and confidence, because consumers will know what to expect from the company every time they use its services, whether those services involve ordering a hamburger or hiring a typist. When you invest in a franchise, you're trained to follow the franchiser's company operating system so that you'll be able to provide products and services at a consistent level of excellence.