Franchising refers to the business ownership model in which an owner (the franchisor) gives license to a third party (the franchisee), allowing them the right to use its operating system, name, trademarked materials, products, and marketing techniques. It’s a special relationship because, although the franchisee must follow the systems laid out by the franchisor, they aren’t actual employees meaning they retain some independence. Furthermore, the personal investment franchisees contribute through royalty fees work as a commitment that can’t be found in a regular employment relationship. Brands that fit the mold are wide and varied.
Discussion breakout: Can you name three franchises you’ve interacted with recently?
A franchise provides prospective business owners with a tried-and-true system and operations manual that explains how to replicate the system at a given location. The idea is that with a series of established processes in place, you can reduce the risk of business failure and increase your likelihood of success.
Joining a franchise system also comes with a network of peers whose knowledge and experience you can draw from.
What are the key responsibilities of the franchisee?
While issues specific to the franchise system should be outlined in the franchise agreement (more on that later), there are a few key responsibilities shared among the majority of franchisees.
The franchisee should:
- Follow the franchisor’s standards, methods, procedures, techniques, and specifications to ensure consistency;
- Pay a fee to the franchisor for the right to use the franchisor’s trademarks (brand) and business system;
- Take care of accounting, local marketing, hiring, and the other administrative aspects of operating a business;
- Invest their time, particularly during the start-up phase, by working hands-on in their business to fully understand the operational side of the franchise; and
- Work in partnership with the franchisor, allowing for effective two-way communication between the two parties and a mutually beneficial relationship.
What are the key responsibilities of the franchisor?
The franchisor must also adhere to its responsibilities.
The franchisor should:
- Provide franchisees with operating systems and support services to help their businesses grow effectively, efficiently, and profitably;
- Continue to evolve the franchise system through research and development of new products and services;
- Handle all national brand advertising and (usually) provide franchisees with assistance for their local marketing activities;
- Protect and manage the brand and its trademarks, while ensuring consistency and quality standards are maintained by all franchisees in the system; and
- Provide initial and ongoing training and support.