For those who are considering buying into a franchised business, understanding the differences between franchisees and franchisors is key in making an informed decision on how best to spend their time and money. A franchisee is an investor who purchases the rights to use a franchisor’s brand and related trademarks in order to operate their own independent business. The franchisor is the company or individual who owns the brand and associated trademarks. In exchange for their investment, franchisees get access to the brand’s existing infrastructure and support, such as name recognition and operational systems.
People who want to spend more time with their family members can set their own schedule when they commit to becoming a franchisee. Not having to answer to a boss or submit to regular work hours can be a huge benefit to a franchisee. The investment is usually substantial, however, so it’s important to weigh the risks and rewards associated with any franchised business before committing to becoming a franchisee.
The relationship between franchisors and franchisees is mutually beneficial. The franchisor provides the franchisee with the brand name, marketing support, and operational processes, while the franchisee provides the franchisor with profits in the form of royalties, fees, and other pre-agreed payments. The franchisee bears the personal and financial risk of owning and operating their independent business subject to the endorsement and guidance of the franchisor.
Franchisees have to adhere to the franchisor’s system of operations, or the rules and procedures, set forth in the franchise agreement. This usually involves franchisors closely monitoring the franchisee’s progress, offering guidance in areas such as staffing, inventory, pay scales, and other matters. In exchange for these services, the franchisor generally takes a percentage of the franchisee’s gross sales as payment.
What must be remembered is that the franchisor is ultimately responsible for the success or failure of the franchise. The franchisor’s goal is to ensure that the franchisee follows the system of operations and brand standards to ensure the long-term success of the franchise. Franchisors must also ensure that the franchisees remain profitable and that their investments are secure, so they need to constantly monitor the franchisee’s progress and offer timely guidance and support.
At IFPG, we consult our members to help them properly assess whether or not investing in a franchise is the best fit for their family. Becoming a franchisee can provide the freedom to work at your own pace and spend more time with your family, as long as you understand the financial risks and obligations that you will face as a franchisee. Our goal is to provide you with the knowledge and support that you need to make an informed decision about becoming a franchisee.
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