Beginners’ guide to franchises

You’ve seen the ads for franchises, but you’ve never really known what they are, let alone whether they might be right for you. Well, now’s your chance to find out.



The word franchise basically means an agreement between a person or group of people – the franchisees – to market a product or service provided by the franchisor. In effect it is a cross between running your own business and working for someone.

You get the freedom to be your own boss, but the protection of working within a certain framework as well as low start-up costs. You don’t have to come up with your own business idea, but you do need to have the skills of an entrepreneur and be able to research a good business plan and develop a range of ways for promoting your business.

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Financially, the franchisee has to pay the franchisor certain fees and royalties – these vary according to the franchise so it is a good idea to shop around and to make sure you select the franchise which best suits your interests and skills.

The franchisor must provide some form of support for the franchisee as well as providing the framework in which to market their product or service. Due to the dual nature of the agreement, both parties have a vested interest in the franchise being a success.

Types of franchising

There are two main types of franchise methods: “business format franchising” and “product and trade name franchising”.

The former provides franchisees with trademarks and logos and a complete framework for carrying out the work as well as ongoing advice and support. The franchisee, who must maintain the standards of the franchise, pays an upfront fee plus continuing royalties so that the franchisor can develop the business. Examples of business format franchising include estate agents, fast food restaurants and hairdressers.

Product and trade name franchising is mainly associated with industries like cars, petrol and soft drink and does not include royalty fees. The franchisor provides the product as well as logos and national advertising and helps the franchisee to secure business and locations. The franchisee sells the franchisor’s products or services.

Being part of a franchise does not guarantee that you will become a great businessperson or that you will break even. That is down to your skills and ambition as an entrepreneur in generating business and in selecting the right franchise for you.

Further reading:

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