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What Is a Franchise? FAQs

As businesses everywhere look for new ways to rebound and prepare for what may come, franchising might just be the solution. But lots of questions like, what is a franchise and what should investors consider when taking this route? The International Franchise Professionals Group (IFPG) can answer these questions and more, helping investors make the best decision for their businesses.

Franchising offers many advantages to both franchisors and franchisees, but there are some important considerations all potential franchisees and franchise investors should make if they are considering taking on this new business venture. These include whether or not they possess the necessary skills and resources to run and manage the business, whether or not they are ready to make an initial investment, and whether they can fully commit to the franchise agreement.

In this article, we’ll touch on the main questions that are often asked about franchising and provide a better understanding of the process.

What Is a Franchise?

A franchise is a legal arrangement between two parties, an entity known as the franchisor and an individual or entity known as the franchisee. The franchisor provides the franchisee with the right to use their products, trademarks, and business methods in exchange for a fee, royalties, and other performance-based payments.

The franchisor generally supplies the franchisee with a set of operating protocols and instructions such as training, marketing, uniformity guidelines, and product promotion, and in return, the franchisor receives a percentage of the franchisee’s sales and profits. The franchisee is free to operate under the franchisor’s guidelines, provided they abide by the rules contained in the franchise agreement.

What Are the Advantages of Franchising?

There are many benefits to owning a franchise. The franchisor typically provides the franchisee with an already established brand that many customers are already familiar and loyal to. This eliminates the need for the franchisee to build awareness in the local marketplace and can often lead to instant success.

In addition, franchisors usually have several years of experience running businesses of their own, and can provide new franchisees with the training and consulting they need to get their business up and running successfully. The franchisor may also be able to provide the franchisee with access to bulk purchasing deals and discounts, allowing them to purchase goods for lower costs than they could on their own.

Franchisors typically also assist their franchisees with the marketing of the business. This can include supplying them with advertising materials, coordinating public relations activities, and providing them with tips and strategies to build their brand and customer base.

What Should Investors Consider?

When investing in a franchise, potential investors should consider a number of factors. The initial cost of owning and operating the franchise should be carefully considered, as should the on-going royalties, advertising fees, and system upgrades that the franchisor may require. Investors should also remain mindful of any potential legal issues or liabilities that may arise from owning and operating a franchise business.

Another factor to consider is the quality of the franchisor’s training and consulting services. This should include a comprehensive assessment of the franchisor’s business model, franchise support, and operational guidelines. It is also important for potential franchisees to understand the terms of the franchise agreement and what rights they will have once they become a franchisee.

Understanding Franchise Agreements

Franchise agreements are legally binding documents that set out the terms of the franchise relationship between the franchisor and the franchisee. These agreements usually include provisions governing the establishment and operation of the franchise business, the fees and royalties to be paid by the franchisee, the length of time the franchise will operate, and any restrictions or limitations the franchisor may impose upon the franchisee.

It is important that potential franchisees fully understand the franchise agreement before signing it. Many franchisors offer prospective franchisees the opportunity to review the agreement, contact a lawyer or accountant to discuss the implications of the agreement, and seek independent professional advice before signing.

In the end

Franchising can be a great way to get started in business or grow an existing one. WHen investing in a franchise, it is important to do your research and understand the key considerations associated with franchising. This includes assessing the reputation and resources of the franchisor, understanding the terms of the franchise agreement, and evaluating their own skills and resources to manage the franchise business.



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