Definition: a business run by one firm under the name of another. The franchiser gives the franchisee a license permitting them to sell goods or services under the franchiser’s brand name, usually in return for a share of the franchisee’s profits. The franchisee’s license permits him/her to use the franchiser’s name, publicity materials, decor, uniforms, etc.
The new business can begin trading on the established reputation of the franchiser immediately.
The franchisee has the advantage of a well known brand name and back up service.
All franchisees can benefit from ideas generated by each of them. For example, when a McDonald’s franchisee thought up the ‘Egg McMuffin’, the recipe was circulated to all the other franchisees and the product became very successful.
Franchises can cost anything from a few thousand pounds for a mobile cleaning business to hundreds of thousands of pounds for a fast food franchise. Before you buy a franchise do your homework, write a business plan and carry out your own market research on your potential customers.
Speak to your bank. They will probably have a person who specialises in advising would-be franchisees.
You should look into the background of the franchisor. Find out how long the business been running, and how many franchises it has. Also check how successful its franchisees have been - have many failed?
You should also check into the support and training that you will receive. And look closely at the financial projections for your franchise. Make sure you are aware of the terms of your agreement, specifically how long you will have the franchise for, whether you'll have an option to renew it and what happens if you need to sell the business.
Never sign up without getting the agreement vetted by a lawyer. Make sure you speak to other franchisees - those suggested by the company, and others that you find by yourself. Ideally try to speak to a franchisee whose business failed.