What is Franchising: A Comprehensive Guide to a Franchise Business

comprehensive guide to franchising

You must have come across the slogans like:

“Our business is your business.”

“Be in business for yourself, but not by yourself.”

“We develop leaders, who develop people, who develop business.”

“Be your own boss; we’ll help you get there.”

You are looking to have business ownership and franchising seems to be a perfect option for it. However, you do not know much about it and do not know if this would be a good business option for you. You are in luck.

On this page, you will get all the information that you need to understand this popular business model and embark on the journey of becoming a successful franchisee.

Franchising: The Origins

Usually, when someone thinks about franchising, the first name that comes to their mind is McDonald’s. However, franchising is much older than this.

The present-day concept of franchising has its roots in the 1850s. The founder of the world-famous Singer sewing machine, Isaac Singer, was looking for some ways to distribute his machines in the near and far areas but he also wanted to explain to the users to use the machine properly.

Because he could not do all the instructions himself, he started selling licenses to entrepreneurs in different corners of the country. The business model is the origin of the franchising that we see today.

Isaac singer 1850

What is Franchising?

As per the International Franchise Association (IFA), franchising is:

A contractual relationship between the franchisor and the franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format, or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources.

In a franchise business model, the franchisee gets access to the franchisor’s industry and business knowledge in exchange for money and efforts. The process shortens the time required to learn and start a business from scratch and the franchisee could take over a business in less time.

The model is also beneficial because this lessens the time required to research and find a profitable business idea. Similarly, by giving out business licenses and support to the franchisees, a franchisor broadens its business horizon without spending extra money and employing an additional workforce.

small scale franchise businesses

To be a successful franchise owner, no matter what kind of franchise it is, the franchisee must follow the operations manual closely and operate and work on the business according to it. In case you are not fond of following a pre-made business model, then working as a franchisee may not be the right choice for you.

The franchise has come a long way and it has roots in the early centuries. The history of franchise dates back to the days when people did not have the advantage of modern technology.

Common Forms of Franchise Business Models

Two of the most common types of franchises are explained below:

Product Distribution Franchise

In this kind of franchise, the franchisee sells and distributes the franchisor’s products. It is done through a trustworthy supplier and their trademark and logo are licensed by the franchisor but they do not provide the entire business running system to them.

These are the most common forms of distribution franchises and some of these include gas stations, automobile services, and soft drinks distribution.

Business Format Franchise

In this form of franchise, the franchisor gives its brand license to the franchisee and allows him to run the franchise as per the brand’s structured business model. After the legal signing of the documents, the franchisee has complete access to the franchisor’s product or service and to their trademarks and complete business model also.

Working with this model includes everything from computer systems, training, operations manuals, marketing plans, and many more. Most of the available franchises are based on the business format.

Though the food chains and businesses are the biggest franchisees of this business model, it is not limited to it only. Business format franchises are highly diverse and are not limited to any single type of business. Now in the United States alone, there are more than 3,000 kinds of franchises that are operating across the country.

how to be a successful franchise owner

Additionally, though the big food chains like McDonald’s and Subway have expanded exponentially now with thousands of units around the world, the idea of franchising is for small businesses. Even today, a franchise typically has less than 100 units.

Finding Out Franchising Opportunities

Franchises are something that you will find everywhere and since it is such a widespread idea and business concept, narrowing them down and finding the best one could be a real challenge.

To begin with, nothing works better than the internet. Other options include franchise consultants, print directories, industry, and business-specific magazines and other publications and tradeshows and exhibitions.

Once you find what you are looking for, consider the following questions before choosing it:

  • Is it a solid trademark or brand name?
  • How many units of the said franchise are operational?
  • How long has it been operating?
  • If it is a new franchise, does it have long term prospects?
  • Does the franchisor offer any kind of technical or management support?
  • What is the total cost of the franchise? Are there any additional costs?
  • Is the business site secure and safe?
  • Who are the competitors and how do your prices compare to them?
  • Are there any guarantees regarding the production material?

To get in-depth information about the franchises, it is better to get the FDDs of the selected franchises. An FDD is a detailed document that outlines the background of the business, the operating franchises, ROI rates, fees, restrictions, rules and regulations, and a number of other business aspects that you must consider before choosing a business’ franchise.

Being a franchisee comes with loads of benefits. Nowadays, people are focusing more on how to be financially independent. Being a franchise owner is one of the best ways of doing it. However, you will need a certain startup cost to begin with it. This franchise startup cost varies and you will have to consider a lot of factors about it. Once done, you can embark on your journey of having a successful franchise.