By definition, a franchise is an agreement or license entered into by two parties; the franchisor (who owns the business) and the franchisee (who buys the right to market the franchisor's products or services). It is a way of doing business based on a proven business format system for which money is paid, usually on an up-front and on-going basis, allowing the use of intellectual property and for the continuous provision of support and training.
In the small business context, franchising is more clearly described as 'business format franchising' whereby a company develops a product or service that is successful in the market place and provides the established systems and procedures necessary to make the operation of the business predictable.
By ensuring that the systems and procedures can be accurately duplicated, and instead of expanding the conventional way by setting up branches, the company taps into the ingenuity and self-motivation of entrepreneurs willing to follow the proven blueprint and able to finance their own establishment. As a result, the corporate strength and market recognition enjoyed by the franchisor is combined with the drive and financial contribution of the franchisee to create a successful network on a national, or even international, level.
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