Module 2 – What is a franchise?
One of the most common questions our advisors at FranchisingWorks are asked is – What is a franchise?
– For those that are not able to attend our workshops or haven’t signed up to our latest webinar here’s our definition of what a franchise is:
“In franchising, franchisors (a person or company that grants the license to a third party for the conducting of a business under their marks) not only specify the products and services that will be offered by the franchisees (a person or company who is granted the license to do business under the trademark and trade name by the franchisor), but also provide them with an operating system, brand and support.” – 2015 – International Franchise Association (IFA)[1]
In layman’s terms franchising can therefore be seen as a form of Supported Self Employment where a person goes into business for themselves but certainly not by themselves.
There are several forms of franchising. The one which, FranchisingWorks support individuals into more than others is known as ‘Business Format Franchising’.
The UK’s leading body on franchising, the British Franchise Association (BFA)[2] sets out several key criteria that franchisors need to achieve in order for them to be meet their standards and be recognised as a Business Format Franchise, these are:
- That the franchise must involve a trademark, as this protects the franchise brand.
- The franchise must have a proven (working) system of trading. The European Franchise Federation (EFF)[3] states that the “cornerstone of any franchise system, is the KNOW-HOW it has developed for that particular system” (Dec, 2015)
- There must be a legal relationship in the form of a licence (franchise agreement). This sets out the terms of the business model. For this, the franchisee agrees to pay an MSF (Management Service Fee or Management Support fee, sometimes referred to as franchise fee or licence fee)
- The franchisee will be able to grow and build the business, being able to sell the business along with the goodwill as per their exit strategy.
Other forms of franchising or non-business format franchising models will not have one or more of the elements above.
To learn more about what a franchise is then please visit the reference links below. Alternatively, if you are interested in pursuing or looking into franchising further as a route to growing and operating a business then register your interest with FranchisingWorks, email info@franchisingworks.org or call 01614081313.
Look forward to our next article Module 3 – ‘The UK Franchise Market – Examples Known’ Where some of the top franchise brands in the UK, both large and small, are discussed as to see why they are successful.
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