What is franchising?
Franchising is a business method or relationship in which the franchisor (the owner of the business providing the product or service) assigns to another person (the franchisee) the rights to market and sell the franchisors goods or service, and to use the franchisors business name for a fixed period of time.
Franchising is often used to describe a number of business models, the most commonly identified of which is business format franchising. There are however other models which are also dependant on franchise relationships and these include:
- Manufacturer-Retailer-where the retailer as franchisee sells the franchisor’s product directly to the public, eg. A motor vehicle dealership.
- Manufacturer-Wholesaler-where the franchisee under license manufactures and distributes the franchisors product eg. Soft drink bottling arrangements.
- Wholesaler-Retailer- where the retailer as franchisee purchases products for retail sale from a franchisor wholesaler eg. Hardware and automotive product stores.
- Retailer-Retailer-where the franchisor markets a service or a product under a company name and standardized system, through a network of franchises. This is the classic business format franchise.
If the franchise involves a proven product or service with a well recognized brand combined with hard-working, well financed franchisees, the chances of success are very high. If, on the other hand, the franchisor is under-funded, with an ill conceived business plan that has not been tested properly and poorly recruited or trained franchisees, failure is likely. The guidelines on our site are designed to assist you to ask the right questions, seek the right advice and ultimately make the right choice.
