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Taking your first steps in franchising
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What is a franchising?

Franchising is a relationship between two or more businesses where the first business (the franchisor) allows other businesses (franchisees) to use its name, products, marketing, expertise and branding for a specified franchise fee.

What is a franchisor?

A company that grants the right to an individual or entity (franchisee) to use its name, trademark, and system of business operations for distribution of a product or service, in return for a fee and other considerations.

What is a franchisee?

The franchisee is a person or business that is licensed to use the franchisor’s trademark, trade name and business model.

Advantages of buying a franchise

  • Buying into a franchise means working under the banner of an established business.
  • A franchisee does not need to have a full array of business skills to start a business
  • The location of the franchise has been assessed for suitability.
  • A franchise allows the franchisee to go to market faster than if he were starting a new business from scratch.
  • Improved credit terms.
  • Assistance in all aspects of starting up the business, for example, staff selection, training, shop fittings, etc.
  • Access to expert services, such as market research, product development, etc.
  • Operational support through the franchisor’s field staff.
  • Joint advertising and promotions.
  • Bulk buying power exercised through the franchisor who is able to negotiate discounts with suppliers.

Buying a franchise - What you need to consider

  • May be limited in terms of ability to do local marketing and employing local market strategies.
  • Relying on the franchisor to make significant business decisions can affect the franchisee’s future income.
  • Franchise costs - A franchisee will often be expected to pay an initial cost to buy into the franchise agreement and thereafter pay ongoing fees.
  • Tied to suppliers - Finding the cheapest suppliers to minimise your overheads and maximise your profits are not allowed because being part of a franchise means you’ll be required to use the franchise supply network.
  • Risks from others - Risk that other franchisees might damage the reputation of your business. One bad decision by partners could be devastating.
  • Franchisee has to adhere to the business format guided by the franchisor by way of rules set out in the franchise agreement.