It’s not just in hospitality that you come across the concept. Hertz is a car hire company that trades in over 150 countries. In fact, one of the earliest examples we have of the franchise model in action was in the 1850s when Isaac Singer decided to recruit help selling his sewing machine and training people how to use it. This gave him the finance to manufacture even more machines.
You will have already heard of lots of franchises, as many of our favourite household brands use the franchise model to scale their businesses globally. Fast food outlets such as McDonalds, KFC and Subway are franchises, as well as coffee giants such as Costa and Starbucks.
FRANCHISING: A DEFINITION
The organic way to grow your business is to set up an outlet in another location and run it yourself or employ an area manager. To do this, you need to have the money to invest.
Franchising, on the other hand, is when you sell your franchise opportunity to a budding investor, who then builds a replica of your business and operates it as their own company. The franchisee has a fixed term licence (usually for five years) to trade under your brand within their territory.
FRANCHISING: IT MAKES FINANCIAL SENSE
Not only does the franchisee pay you (the franchisor) an initial investment, they also pay a management service fee monthly, which can be a fixed fee or a percentage of the turnover or profit.
They have to run the business as set out in your franchise agreement, trading under your brand name, selling your product or service and adopting your operations and systems.
Instead of you having to raise your own capital to expand your company into new areas, the franchisee pays to run a business for you and becomes a source of passive income.
FRANCHISE: a company that adopts the franchise format, or an individual unit under the brand umbrella.
FRANCHISEE: the person or limited company that operates a single unit.
FRANCHISOR: the owner of the brand, who sells franchise units to individual business owners.
FRANCHISE UNIT: a single outlet operated by an independent business owner under the branding of the franchisor.
FRANCHISING: the process of turning your company into a package that helps someone else replicate your business.