So you’ve heard the term franchisor before and want to know more about it, but can’t seem to find it defined in an easy-to-understand way? There may be some confusion surrounding what exactly a franchisor does and how they work, so we’re here to help clear things up!
A franchisor is essentially the owner of an brand who wants to find local business owners who are eager to expand their business nationally or internationally, but do not have the expertise or resource to expand their reach on their own.
What does franchise mean?
In some industries, franchising has become synonymous with scam. But that's unfair to franchises—and ignores one of its benefits. To be sure, there are plenty of fraudulent so called franchisers out there.
But you should know what you're getting into before signing on with any company; if you're considering becoming part of an existing franchise (either as an owner or a potential customer), it's best to know exactly what it means when someone says,
"This is going to be a franchise".
In truth, every business model can be thought of as being either a centralized or decentralized franchise.
What is a franchise agreement?
A franchise agreement defines how a franchisor and franchisee will do business together. These agreements can be quite complex, but if you understand what's going on under the hood, it'll help you navigate business relationships.
For example,
What are some of your rights as a franchisee?
What does a franchisor owe to his or her brand partners?
Is there an end-date for your agreement?
What happens if things go south between you and your franchisor partner?
Be sure to read over any new agreements carefully and hire an attorney when necessary.
What is an operating manual and why do I need it?
An operating manual is a vital part of starting any new business. It contains all of your rules and guidelines on how to best operate your business, what to do in various situations, policies, maintenance schedules and more.
Without an operating manual, it would be like having a car without tires.
You can drive it but it's not going to get you very far. An operating manual is more important for small businesses than large ones because smaller businesses typically don't have many employees and therefore rely on their employees knowing how things are done from memory alone.
With an operating manual, everyone knows what they need to do and what they are expected to do no matter who is working at any given time as well as in case anyone gets sick or goes on vacation.
Is there any training provided with my franchise opportunity?
If you’re interested in buying a franchise, it’s essential to understand how much training will be provided. After all, who wants to pay thousands of pound/dollars up front and then figure things out on their own (and with no assistance)?
You want a franchisor that offers comprehensive initial training and support—both in person and online—so you can get off on the right foot.
And if there isn’t any formal training, make sure that there are plenty of established franchisees who are ready to help guide you as you go.
If they aren’t available, find another franchisor. An established network of franchisees can be an invaluable resource as you get your business off the ground!
What else do I need to know about running my new business?
Running your own business can be incredibly exciting—there’s no doubt about that.
But before you go all in, there are certain things you should consider:
What happens if someone gets hurt on my property?
Can I afford to pay for advertising when times are tough?
Is it too late to change my mind about going into business for myself?
How much will it cost me to register with government agencies like worker’s comp and sales tax, and how do I get those numbers up front?
Some basic questions like these can help you stay out of trouble during rough patches—and make sure you don’t fall short of profits during prosperous ones.
The important thing is asking yourself these questions ahead of time so you have time to put together a game plan.
What is a Franchisor - The Bottom Line
A franchisor is a company that licenses its intellectual property to franchisees, typically for a fee and a percentage of revenue.
The term also refers to an individual who buys into and participates in another person’s business, perhaps simply sharing its trademark or owning one restaurant in one city.
Because franchising often entails very low startup costs—think just an initial fee of £/$10,000 or so plus attorney fees—the industry boomed after World War II as people looked for new ways to start businesses.
Today there are over 1 million franchisees worldwide, employing over 8 million people and generating $400 billion in sales annually.