Franchising is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who operates a third-party retail outlet called a franchise. The franchisor grants the franchisee access to its proprietary business knowledge, processes, and trademarks, allowing the franchisee to sell the franchisors goods or services under an existing business model and trademark.
A franchise is a type of license that grants a franchisee access to a franchisors proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell the franchisors goods or services under an existing business model and trademark. In a franchise, a business (the franchisor) licenses its trade name (the brand) and its operating methods (its system of doing business) to a person or group operating within a specific territory or location (the franchisee), which agrees to:
- Use the franchisors name and operating methods
- Follow the franchisors rules and guidelines
- Pay the franchisor fees for the right to use the franchisors name and operating methods
Franchising is a business growth strategy that minimizes the franchisors capital investment and liability risk. It is a temporary business investment involving renting or leasing an opportunity, not the purchase of a business for the purpose of ownership. A franchise can be a great way for an individual to start a business, especially when entering a highly competitive industry such as fast food.
