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What is franchising?
Franchising is when one business - the franchisor - hands over the use of its trade name and business set-up for another business' use - the franchisee - in return for payment.
The franchisor normally provides everything needed to establish the business - training, customer leads, equipment, stock - as well as ongoing support as the business develops.
A franchisor sells franchises to a number of people, with each franchise in the network usually having exclusive rights to trade in a specific geographical area or (occasionally) market sector.
Ownership and control
The franchisee owns and runs the individual franchise. It may set up as a sole trader, limited company, or partnership trading under the franchise name. But the franchisor controls the overall operation, overseeing marketing and quality standards.
The costs involved in setting up a franchise licence include:
- a franchise set-up fee, payable to the franchisor
- ongoing management services fees, based on annual sales or mark-ups on supplies
- set-up costs, such as premises, shopfitting, vehicles, staff, stock and equipment
Franchise agreements
The franchise agreement outlines the rights and obligations of the franchisee and franchisor. This includes how the franchisor will support the franchise network with training, product development, advertising, promotional activities and specialist management services.
There is no legislation governing franchise agreements, but they should be in a standard form, so that all franchisees operate under the same terms and conditions.
See our guide on how to buy a franchise.
Professional advice
Speak to your bank - all major banks provide specialised franchising services including finance and business advice.
Ask your business adviser or accountant for advice on the best business structure for your franchise - sole trader, limited company or partnership.
Use a solicitor with franchise experience to look over the franchise agreement before you commit to it.
