Everybody seems to be talking about it, but exactly what  is a franchise? In essence, a franchise comprises a centrally managed business, which has developed a highly recognisable brand or service, which is easily replicated.  Instead of starting up chain stores, the business owner has opted to expand their core business by creating a franchise. The franchisor sells franchisees the rights to this business, and expands the brand in this way. The franchise agreement generally includes licence to use the franchise trademark and the franchise’s business practices as well as access to training and support. Franchises usually follow the same operations manual and have standardised approaches to most aspects of the business from uniforms to products. For example, across all establishments in a restaurant franchise the menu will be the same or very similar with only marginal differences. Customers should know that meals will be of an equivalently high standard, and presented and served in the same way no matter where they go.

Franchise agreements differ greatly, depending on the nature of the business in question and a number of other factors. However, both the franchisor and franchisee are bound by the terms of the franchise agreement.  This agreement is contained in the disclosure document. This articulates all aspects of the contract and is the core legal document to which both parties are bound. Generally the document spells out the particulars of how the franchisee is bound to conduct business in a certain way. Where the terms of the agreement are breached, the contract can be nullified.

Franchising is an increasingly popular solution for people choosing to go into business for the first time. Joining a franchise gives the franchisee access to a central business hub. But many people don’t grasp what a franchise is. It is seen by many as offering the franchisee the possibility to purchase an ‘instant business.’ However,  the reality is much more complex. The hours and energy expected of a franchisee are hugely demanding. Developing a business is a complicated and time consuming exercise. Entering into a franchise business is arguably as time and labour intensive as building your own business from the ground up.

Of course, in buying a franchise you are purchasing a recognised brand, as well as tapping into a wealth of knowledge and expertise about the business, so you don’t have to reinvent the wheel, so to speak. The central management which comes with a franchise model is also a great source of support.  This does reduces the risks surrounding business start-up. Nonetheless, the franchisee does bear a significant risk, and for some people this can be a major source of stress. For others though, starting a fracnhise business gives them the perfect amount of personal investment in their business. Working with a standardised model allows them to excel at the basics and grow a successful business. Many successful franchisees say that they would have been unable to achieve this level of success striking out on their own.

Nonetheless the capital outlay required to buy a franchise is usually considerable. Many franchises do offer finace packages. This can be an ideal solution for those requiring a loan. However, it does pay to be cautious in entering into such an agreement. Make sure that you research the other funding avenues available to you, as you may find better terms elsewhere.

If you are considering entering into a franchise business, it is usually a good idea to ask someone already working in the sector what is a franchise? Ask them about all the good things, but don’t forget to grill them on the negatives too.  Although many people are familiar with the concept of franchising, few understand exactly what  this business model entails. Buying a franchise is a major life decision, and you need to enter into it in full knowledge of the commitment you are making.