How franchises work
What franchising's about - from fast food to finance
In business, "franchising" is called business format franchising and is what happens when an original company, the franchisor, grants rights to a third party, the franchisee, to run its business using the same brand, products, services, promotions and management systems. Business format franchising can cover a range of businesses from fast food restaurants to courier services.
The franchisor is the owner of the business system and any brands and trademarks. Franchisors allow their franchisees to use these under licence in a designated area. They provide support for them in starting their business, and in running, promoting and developing it. The franchising business must be properly set up according to the Companies Act 1985 and operate under the relevant government legislation.
Franchisees own and run each outlet within a franchise network. They buy the rights to run the business using its established brands and trading systems. Franchisees remain self-employed and own the individual outlet but must operate the business according to procedures set up in the franchise agreement. They pay for the owner's help in the form of national promotion, training, administration services and continuous product and system development. Payment can be a set fee, or linked to turnover, or a combination of both.
Further information is available from the British Franchise Association, the Business Link network and banks.