How Does A Franchise Work, and Should I Own One?

By: Emma Miller

Starting your own business can be an exciting prospect for most first-time entrepreneurs. You get to develop your own business ideas, you have flexible work hours, and you actually get to call all the shots for a change.

Yep, it’s good to be the king.

However, after the initial enthusiasm fades and reality kicks in, you’re left with a myriad of issues including legal, financial, HR, marketing—and the list just keeps growing. It’s no wonder then that, according to the SBA, as many as 50% of all small businesses fail within their first five years of operation. Hence, beginning from scratch may not be the best option for entrepreneurs who are just starting out. The alternative? Franchising.

What is a Franchise?

In short, a franchise is an arrangement between two parties—the franchisor and franchisee—where the franchisee purchases the right to use the franchisor’s trade name and operating methods as their own. This allows small business owners to have an already-established brand under their belt with a proven track record and a fully-developed system of day-to-day operations without them having to go through the pains of trial and error themselves.

Today, there are a whole bunch of different franchises out there, ranging from food and retail services to real estate and even healthcare to a small degree. According to IFA’s report, there’s an estimated amount of some 750,000 franchise establishments in the US alone. What’s more, the report also shows that franchises are slowly growing in popularity, with an annual increase of around 2% since 2014.

How does it Work?

From a legal point of view, a franchise is regarded as a license that can be granted to one businessperson (franchisee) by another (franchisor). In turn, the franchisee agrees to conduct their business according to the terms of this license, and usually pays the franchisor royalties or percentages of the sales to remain in business.

Looking at it from a more business point of view, a franchise gives you unique access to another brand’s vast repository of resources and experience. Now, what is implied by this particular franchise business definition is that you’re getting more than just the intellectual property of the brand in question. For example, you don’t franchise KFC’s chicken wings or Wendy’s burgers, but the whole business model that they employ. Also, the franchisor most commonly provides you with some form of in-depth training programs, operating manuals, technical support, quality control, and so on. Therefore, you’re not entirely on your own as when you start a business from scratch.

The Many Benefits of Franchising

Franchising offers novice entrepreneurs a way to run their own business even if they lack the means or the necessary experience to do so by themselves. What’s more, teaming up with an already-established brand provides you with some levels of security as you’re not treading through unfamiliar territory, but actually going down a well-beaten path. As such, the franchisor acts like an older brother, a role model of sorts, who protects you and keeps you out of harm’s way with their vast knowledge and life experience. Meaning, franchising involves less risk-taking than your average startup as you have someone to watch over you and support you during your entrepreneurial journey.

Also, as previously mentioned, you don’t have to waste time searching for efficient ways to run your business as that’s already cut out for you. Hence, you can focus on other more important matters and look for ways to grow and expand your new business. Moreover, you don’t have to work on building a name for yourself or engage in tedious marketing efforts that don’t guarantee you a return on your investment.

Finally, franchising enables you to forge strong relationships with other brands as well, as suppliers and manufacturers are generally more open to working with franchisees than with random small businesses due to having more credibility. This allows you to establish a robust network on a more international scale, all thanks to your franchisor’s reputation and good name.

Should You Own One?

Now, whether or not you should turn to franchising depends mostly on your mindset and personality. Do you cope well with stress or do you in fact buckle under pressure? Are you an outside-of-the-box kind of type or do you prefer following an already prescribed formula? How well do you comply with rules and regulations?

These are just some of the questions you need to give an honest answer before making a final decision. So, if you’re not a huge risk-taker, or a complete control-freak, you have what it takes. At the end of the day, despite being your own boss, franchising demands you to conform to your franchisor’s standards and ways of doing things, and if you cannot comply with those, then perhaps you need to rethink your options.

To sum up, franchising deals offer first-time entrepreneurs much safer waters to dip their toes in when they’re just starting out than the average small business. Not only that, but they also provide owners with all the necessary equipment and training they need to sail their businesses over the horizon. Teach a man to fish… you get the idea.

By Emma Miller