What Is Franchising?

Some entrepreneurs are ready to take an idea, build a business, find their own financing,
and take the risk of starting with very little and hopefully building a successful venture.
Others want the opportunity to be their own boss, but aren't excited about blazing their own
trail. For these more risk-adverse entrepreneurs, franchising may be just what they are
looking for.

Franchising is a business model wherein an individual operates their own location of a

larger, more established company. For example, when you go to your local McDonald's,
Subway, Dunkin' Donuts, or nearly any hotel in the United States, you are most likely at a
franchise location.
Meaning of Franchising

Franchising is a system used by a company (franchisor) that grants others (franchisees) the right and
license (franchise) to market a product or service under the franchisor’s trade names, trademarks,
service marks, know-how and method of doing business. It is a system for distributing products or
services through independent resellers. It is a format of mutual dependence which allows both the
franchisor and the franchisee realize profits and benefits.

Some Terms Regarding Franchising

Franchisor the person or company that grants the franchisee the right to do business under their
trademark or trade name

Franchisee the person or company that gets the right from the franchisor to do business under the
franchisor’s trademark or tradename and benefits from it.

Franchise The right to use a specific business name and sell its goods or services in a specific city,
region or country.
 Characteristics of Franchising

1. License: The franchisee gets the right to use, franchiser’s trademark

under a license.
2. Policies: The franchisee must follow the policies concerning the mode
of conducting business, as stated in the agreement.
3. Marketing support and technology: Franchisee is supplied with
continuous market support and technology, by the franchiser, to undertake
business, in the manner stated in the franchising agreement.
4. Training: Complete training and assistance are provided to the
personnel working in the franchisee’s enterprise.
5. Royalty: For making use of a well-known business model, the
franchisee pays the royalty to the franchiser.
6. Limited period: Franchisee is allowed to use the business know-how
and brand name for a specified period, as mentioned in the franchise
agreement. Although, the agreement can be renewed further.