1. What Is a Franchise?
A franchise is a business model where an individual (franchisee) buys the rights to operate under an established brand’s name and system from the original company (franchisor). The franchisee pays fees to use the brand and gets access to training, support, and business methods.
2. Key Terms in Franchising
- Franchisor: The original business owner that licenses the brand.
- Franchisee: The individual or company that buys and runs the franchise.
- Franchise Agreement: A legal contract outlining the rights, responsibilities, and terms.
- Franchise Fee: An upfront payment to join the franchise.
- Royalty Fees: Ongoing payments based on sales or profit.
- Territory: The geographic area where the franchisee operates exclusively.
3. Types of Franchises
- Product Distribution Franchise: Sell franchisor’s products (e.g., car dealerships).
- Business Format Franchise: Use full business model and branding (e.g., McDonald’s, Subway).
- Management Franchise: Operate a business while managing a team under the brand.
- Investment Franchise: Large-scale franchises run with hired staff, requiring major capital.
4. How a Franchise Works
- The franchisor provides a proven business model, brand recognition, training, and support.
- The franchisee pays a fee and agrees to follow the franchisor’s rules and standards.
- Profits are kept by the franchisee after paying royalties and operating costs.
This system allows rapid expansion for the franchisor and lowers startup risk for the franchisee.
5. Advantages of Franchising
For Franchisees:
- Established brand and customer base
- Training and operational support
- Lower startup risk compared to independent businesses
For Franchisors:
- Faster expansion with less capital
- Earn franchise and royalty fees
- Spread brand reach efficiently
6. Disadvantages of Franchising
- Franchisees have limited control over branding and decisions
- Ongoing costs (royalties, marketing fees)
- Legal restrictions and contract obligations
- Poor performance by one franchisee can affect the brand’s reputation
7. Franchise Examples
Popular UK and global franchises include:
- McDonald’s
- Subway
- Costa Coffee
- Domino’s Pizza
- Anytime Fitness
- The Body Shop
Frequently Asked Questions
1. Is a franchise a type of business ownership?
Yes, it’s a hybrid form of ownership where the franchisee owns the business but operates under the franchisor’s system.
2. How much does a franchise cost to start?
Franchise fees vary widely—from a few thousand pounds for small operations to over £250,000 for major brands.
3. Can I sell my franchise?
Yes, but usually with the franchisor’s approval and within terms of the franchise agreement.
4. Do franchises guarantee success?
No. While success rates are generally higher than independent startups, performance depends on location, management, and market demand.
5. What’s in a franchise agreement?
Terms include fees, territory, duration, operational rules, and exit conditions. Always review it carefully before signing.
6. Are there UK laws that regulate franchising?
There are no specific franchise laws, but contracts are governed by general business and contract law. Ethical standards are promoted by the British Franchise Association (BFA).
Conclusion
The franchise definition is more than a textbook explanation—it’s a proven path for entrepreneurs to enter business with lower risk and strong brand backing. Whether you want to buy into a well-known brand or franchise your own, understanding how franchising works is the first step to making a smart move in 2025.