What is a franchise?

What is a franchise

According to our latest research, two out of three people have considered owing their own business*.

If you have the passion to start your own business but don’t want to start from scratch, one option available to you is franchising.

Here are some things you need to know about starting your own franchise:

What is a franchise?

Franchising is when an established business allows a third party the right to operate using their trade-name, either through their manufacturing, distribution or sales channels.  This is usually in return for a one time franchise fee, plus a percentage of sales revenue.

There are three main types of franchise:
Business format franchise

An agreement whereby a business (franchisor), licenses another business (the franchisee) to trade using their branding, business model and a number of other assets, whilst also supplying additional support and guidance as part of the package. This is the most common type of franchise.

Product distribution franchise

In a product distribution franchise, the franchisor allows the franchisee to sell their products, and licenses their logo for use, but does not provide any ongoing support to the business. Essentially, it works as more of a supplier/seller relationship, but with additional branding. Branded petrol stations would be an example of this, allowing their name to be used and supplying gasoline, but leaving business operations up to the franchisee.

Manufacturing franchise

A manufacturing franchise is licensed to produce goods and services using the franchisor’s brand name. Food and beverage companies often operate in this way (selling syrup concentrate to a bottling company, who then sells it on after mixing, for example), as do some wholesalers.

Who offers franchising opportunities?

A number of the world’s biggest businesses offer franchise opportunities, and see them as an important part of building their brand. They come in a range of different sectors, from retail and banking through to catering and hospitality companies.

Examples of companies which offer franchising opportunities include:

  • Lloyds
  • Coca-Cola
  • Subway
  • McDonalds
  • Marston’s

Where can I start a franchise?

Franchise opportunities are available in a variety of locations. In fact, if you can represent to a business that there is an opportunity in your area, you can start a franchise almost anywhere.

Why start a franchise?

There are a number of reasons you may consider starting a franchise. The most obvious benefit is the opportunity to trade under a well-established name, giving you a head start at building your business. The brand will usually have a dedicated customer base, not to mention the fact that you will benefit from any advertising or marketing efforts the franchisor may currently be operating.

Other benefits include a proven business model, dedicated support, training and ongoing advice from the franchisor, not to mention reduced buying costs or increased funding options due to the power of the brand.

In short, successful franchises can be highly lucrative.

What are the risks of starting a franchise?

Although there are many good reasons to start a franchise, there are a number of things to consider before you make your decision.

Aside from the long-term financial commitment involved, you may be working long or unsociable hours, as well as having to make difficult or stressful decisions. To be successful starting a franchise, you need to make sure it’s the right decision for both you and your family, and that it fits within your long-term career goals.

It’s worth bearing in mind that you may also be somewhat restricted in terms of creative initiatives, as you will need to remain loyal to the brand and their ideals, leaving little room to add individuality.

What next?

If you feel like franchising is the right option for you, the next step is to start researching which options are available to you.

Find out about the latest franchise opportunities »

* reed.co.uk Franchises survey, October 2014