franchise jargon

What is Franchise or Franchising?

Franchise or franchising is a practice or method of business operation wherein it enables certain businesspersons to generate their revenue by the help of trademarks, brand names & proprietary system. Effectively, if the system operates under a business name/brand and makes some money then it can be open for franchising. Indeed, franchising is one of the best cost effective way to expand business without the franchisor incurring the necessary expenses of establishing lot of outlets. For the franchiser, it is a great way to build a ‘chain of stores’ to distribute products/goods which will avoid the liability and investments of their chain. Prior to franchising, the franchisee pays a fee which will set up all costs that is required to establish and build their own franchise business, including the training fee to be taught and as well as the ongoing fees for continuing the support. Marketing fee may well also be charged for advertising and promotion which can either be national & local basis thus benefitting both the franchise group/company and the individual franchisee.

Franchising enable franchisors to offer their services and goods to masses (much larger customer base) than operating the business by themselves. It also allow franchisee to benefit from the business system that is supported and proven by their franchisor. This relationship is profitable for the both parties as it allows franchisee to focus only on the day-to-day activities of running the business while the franchisor is in charge of improving and building the sales of the services or products in the market. There might also be an ongoing franchise fee which is charge as either a calculated or fixed amount as the revenue percentage. This is where franchisors gain their ongoing income. For this amount, the franchisor are responsible on providing necessary support (e.g. crew training, facility improvement, etc.) to their franchise networks and also on improving offered product and services so as to increase their business profitability.

There are various types of franchising but all of them just follow same pattern such that franchisor allows their franchisees to supply products/services under a written-down method provided with a fee as controlled by the franchisor. Each aspects of the franchising business, starting from daily operation, store design and products offered are controlled by franchisors and should be written down in ‘operations manual’ which are always updated to ensure that all of their franchisees offer the same products and the same way in each branch of the franchisors’ networks. A franchise may also expand into places or areas where the franchisors cannot do on their own (e.g. due to capital investment constraints). After the formula and brand are carefully designed & executed properly, franchisors can able to sell chains of franchises and rapidly expand it across continents and countries using the resources and capital of their franchisees while minimizing their own risks.

If you are planning to buy a franchise and start a business of your own, you just need to find a good one which matches your criteria, investment budget, experience and type of business that you want to become a part of. Evaluate your possible franchisors and assess if which of them can offer you a profitable and good business outcome in return.

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