Defining a franchise

The term 'franchising' has been used to describe many different forms of business relationships, including licensing, distributor agreements and agency arrangements. In its most familiar sense, the term ‘franchise’ has arisen from the development of what is called 'business format franchising’.

Business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade as their own business under the brand of the franchisor, following a proven business model. The franchisee also receives a package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a predetermined basis (including a predetermined agreement length, with renewal options).

The principle is simple - some companies choose to grow, not by developing in the conventional way, but by granting a license to others to sell their product or service. There are clear advantages to this:

• You don't have to come up with a new idea - someone else has had it and tested it too!
• Larger, well-established franchise operations will often have national advertising campaigns and a solid trading name
• Good franchisors will offer comprehensive training programmes in sales and indeed all business skills
• Good franchisors can also help secure funding for your investment as well as, for example, discounted bulk-purchases for outlets when you are in operation
• If customers are aware that you are running a franchise, they will understand that you offer the best possible value for money and a consistent quality of service - although you run your 'own show', you are part of a much larger organisation

In order to be capable of being franchised, a business must have all of the following aspects:

• A brand which is wholly owned and protected (both legally and operationally)
• A system that is both proven (has been successfully trialled with a pilot franchise) and transferable (i.e. can be operated in other geographical locations)
• Support for its franchisees, both during the initial set-up phase and on a continuing basis
• An agreement which is both comprehensive and fair