How does a franchise work?

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Many people have heard of a franchise and roughly what they are. But a lot of people aren’t sure what a franchise is and how it works.

There are two people involved in a franchise agreement, one is the franchisor for example Subway who grants the franchise licence to the franchisee who invest in it.

A franchise isn’t an independent business as the franchisee buys an opportunity to own and run a business based on the franchise established business methods and branding. So if a local business man wanted to start a sandwich business, he could invest his money in a new business and hope it does well or he could buy a Subway franchise and know that he is almost guaranteed business as it is an established business.

Often a franchisee will be given an operations manual that ensure that’s all services and products offered will be up to the standard the brand expects. So in our Subway example the menu would tell you which sandwiches to offer and how to price them.

Having an operations manual removes the need for a franchisee to come up with a business plan as they already have a pre-made one for them. This will cover areas such as marketing, products, service delivery, accounts, layout and store design, recruitment and training.

Any good franchisor will provide training to make sure the business will be run to the proven methods they have developed over time, allowing the franchisee to succeed as they have.

Both the franchisor and franchisee will agree to obligations that will be laid out in the Franchise agreement, allowing both parties to be confident that they will not be left alone or the brand will not be ruined. These franchise agreements should always be looked at by experienced solicitors before anything is signed. The franchise agreement will detail the terms of a business relationship, start-up fees, royalties, restrictions, support, length of agreement, renewal and selling rights.

Essentially when you buy into a franchise, you are agreeing to run a business to how the franchisor wants the business to be run. In return you get to run your own business using proven methods and with a high chance of success.

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