Franchising Vs. Licensing: What's the Difference?
When you're considering opening a Canadian business via an established brand, you've probably run across the terms "licensing" and "franchising." These two business models are not the same, and it's important to understand the differences.
In the most basic terms, the biggest difference is the amount of support you'll get. With a franchise, you'll likely receive support in training, marketing, site selection and other areas, whereas a licensing agreement provides little or no support at all. Learn more about these two business models so you can make the right choice for you.
Franchising in a nutshell
Generally, a business starts franchising once its business model is proven and its brand has some type of recognition at the regional level or higher. This lets you leverage both the brand's name and its systems, which are already in use.
However, you do have to run your franchise in the way the franchisor determines as the franchisor has control over the intellectual property (the brand) and some aspects of the franchise business operations. You use your capital to start the business, but the franchisor supplies the knowledge needed to run the business according to their model.
The lowdown on licensing
In a licensing model, you're paying to use the intellectual property but you can run your business however you choose. The brand you're licensing from may detail how their property can be used, but they won't provide a business model or support as you would receive from a franchisor.
License agreements are frequently used between a current business owner and a brand when the owner wants to expand a product line and the lack of support isn't a big deal.
Which way to go
The best model for you will depend on your situation, how much control you want to retain over the business, and how much support you need. A licensing agreement is often less expensive and doesn't take as long to put into place as a franchise agreement, but it also comes without the support and other benefits a franchisor provides. Legal protection is another consideration. There are specific franchise laws in some Canadian provinces that protect franchises, but a license agreement may not fall under these laws.
As with any other business opportunity, do your research before committing to any franchise or license agreement. Both of these will impact your bottom line, so it pays to be as informed as possible.