What Is A Franchise?

A franchise business is a business in which the owners, or “franchisors”, sell the rights to their business logo, name, and model to third part retail outlets, owned by independent, third party operators, called “franchisees”. Joining a franchise can be seen as a two-way process:  the franchisor is assessing the suitability of you as a franchisee at the same time you are gauging the opportunity as an offer.

A business owner you should be prepared to do your own ground work in order to determine what kind of franchise you want to buy.  If you have a particular kind of franchise in mind, then do research on that type and make sure it fits you, as a business owner and personally.

To invest in a franchise, the franchisee must first pay an initial fee for the rights to the business, training, and the equipment required by that particular franchise.  Once the business begins operating, the franchisee will generally pay the franchisor an ongoing royalty payment, either on a monthly, quarterly or annual basis.

Generally, the franchisor will require that the business model stay the same.  For example, the franchisor will require the franchise to use specific uniforms, business methods, and signs or logos particular to the business itself.  The franchisor also exercises some control over some elements of the franchisee’s operations necessary to protect its intellectual property and ensure that the franchisee is adhering to its brand guidelines.  The franchisor has little or no role in the day-to-day management of the franchisee’s business, because the franchisee is an independent operator and not joint employers with the franchisor.

Franchising is simply a system for expanding a business and distributing goods and services.  It is based on a relationship between the brand owner and the local operator to skillfully and successfully expand.  While every franchise is a license, not every license is a franchise under the law.  In the United States a license becomes a franchise when three specific elements are in place:
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• The franchisee’s business is substantially associated with the franchisor’s trademark;
• The franchisee pays an initial and /or continuing fee for the right to enter and remain in the business; and
• The franchisor exercises control or aids the franchisee.

The definition of a franchise can vary significantly under the laws in some states and may include other definitional elements including, but not limited to, the franchisor providing a marketing plan or maintaining an interest with the franchise.  As a business owner seeking to purchase a franchise, how do you know if you are truly ready to be a franchisee? 

Fontenot & Associates Solutions, LLC encourages business owners to understand their options as an entrepreneur and business owner and to be prepared for the daily operations, time and training ahead of them. Understand the details first, then move forward.  The policies and procedures must be developed in detail and our firm is the right support team to get you started.