Starting At The Beginning: What Is a Franchise?

Sometimes, the best place to start things is at the beginning. Let’s.

So, what exactly is a franchise? According to my friends over at Wikipedia;

“Franchising (from the French for honest or freedom} is a method of doing business wherein a "franchisor" authorizes proven methods of doing business to a "franchisee" for a fee and a percentage of sales or profits. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor, and may indeed be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involves non-renewal or cancellation of franchise rights."

Wow. That sounds enjoyable. Surprise spot checks. If you don’t pass franchisor muster, you don’t get your franchise renewed. Just imagine…all of those long hours-all of that financial risk, gone. Where do I sign?

It {Franchising} actually isn’t that bad. A quality franchisor {the franchise company} really doesn’t try to find ways to kick you out of the system. As long as you are in business, you are paying franchise royalties. The royalty is the percentage of your gross sales revenue that the franchisor receives from you. It ranges from 4% to 12%, or more.

{If you are saying to yourself “That is ridiculous! Why would I want to pay 12% of my sales to them?-your reaction is completely normal}.

Anyway, when I do presentations on franchising at any one of a number of venues, I tell my audience that franchising is basically a license. You are a licensee of the license of the franchise company. Your license, in which you pay an upfront Franchise Fee for, includes the right to use the franchisor’s signage, logo, advertising materials, business systems, software, training manuals, operations manuals, and various other things that help you start-up your operation.

So far, you are paying money up front, for the right to use the franchisor’s proprietary materials etc. You are also paying royalties, usually on a monthly basis, until infinity. {But not beyond!} You are actually paying your royalties as long as your franchise agreement remains in effect. Most franchise agreements are 10 years, and can be renewed. Once again, though, it is time to pay a little. There is usually a renewal fee of a few thousand dollars.

So far, it looks like it really pays to be the franchisor. It can. But it is not too shabby to be in business for yourself, as a franchisee, either. But it is not easy. I wrote about it not being easy, on my main blog- The Franchise King Blog. If you have a couple of minutes, I strongly suggest you read that post. It is referenced almost daily on the internet.

I am still Pro-Being In Business for yourself. I am Pro-Franchise. I will write about the good, and bad. Stay tuned….