Franchising is an arrangement where the owner of a proven business format or system (the Franchisor) agrees, for a fee, to allow a person or company (the Franchisee) to trade using the same product, service, or trade name, and passes the benefit of its know-how to that person or company.
The four essential elements are:
- Legal contract between the Franchisor and Franchisee
- Training provided by the Franchisor to the Franchisee
- Operations Manual developed by the Franchisor for the guidance of the Franchisee
- Ongoing support provided by the Franchisor to the Franchisee
In effect, franchising is a business partnership in which both parties, the Franchisor and the Franchisee, depend on each other for continued success. The franchise relationship is governed by a detailed legal agreement usually for a minimum period of five years. This agreement sets out the rights and responsibilities of each party and should contain the right to renew at the end of the term, subject to satisfactory progress.
Whilst the purchase of a franchise helps to avoid many of the pitfalls of starting up from scratch by “buying into” a proven business system, it will still require just as much hard work, determination and self-motivation on the part of the Franchisee as with any other business start up.