What Is a Franchise and How Does It Work?

• January 27, 2024
• Richard Willis

You may have already come across the word ‘franchise’ before. However, do you know what it really means? Franchising is a tremendous part of contemporary business, and it has allowed many entrepreneurs to build wide-reaching business networks. Curious to find out more? Let’s take a look at what a franchise is in more detail and how it works!

Definition of Franchise

So, what exactly is a franchise? According to the International Franchise Association, a franchise is a type of business that involves two parties – a franchisor and a franchisee.

• A franchisor establishes the brand’s business model and trademark.
• A franchisee pays a fee to the franchisor for the right to sell the goods or services under the existing trademark.

Types of Franchises

There are many different types of franchises out there, but they have one thing in common – they are all businesses that use a proven system to sell their products. Franchises are often associated with the food industry, but they can also be found in other industries such as retail, health and beauty, and professional services.

How Does It Work?

To put it simply, you buy into an existing business, and you get to use the other company’s brand, name, and existing system of operation in exchange for royalties on sales. This can be in the form of a recurring payment, a fixed fee or a percentage of gross sales. But in addition to that, you also get access to their marketing materials, training programs, and other tools that will help you run your own business. The franchisor typically provides the franchisee with ongoing support and training, monitors how well the franchisee is doing and provides feedback on performance. All the details are typically outlined in the agreement made between the two parties.

Final Thoughts

Franchises are a popular way for people to start their own businesses with support in place that helps create a smoother transition. By purchasing a franchise, you get to use the other company’s brand, name, and system. And now that you know what a franchise is and how it operates, you can decide whether that’s something you’d be interested in and think of your next steps!

Looking to buy or sell a franchise?

You’re in the right place. Free Business Brokers Australia provides a free service that introduces sellers and buyers. Contact us today and begin the process with the help of our experts!