A Glossary of HR Terminology

Glossary of Human Resources Management and Employee Benefit Terms

A Glossary of HR Terminology

Glossary of Human Resources Management and Employee Benefit Terms

HR Wordbook > Franchise Business

HR Wordbook > Franchise Business

Franchise Business

Franchise Business

What Is a Franchise Business?

A franchise business is a type of business that licenses the rights to sell its products or services under its name brand and business model. The owner of a franchise business is called a franchisor, while the licensee is known as a franchisee. Many locations of common retail chains such as McDonald’s and Jiffy Lube are operated by franchisees instead of being owned by the parent company.

Much of the value of a franchise business is in its familiar name brand. Many customers return to franchise business chains they have patronized in the past because they are confident, they will have the same satisfying experience at any location.

A franchise business model is well suited for businesses that want to increase the number of their locations or expand into new territory. They can do so with fewer capital requirements, which are paid by franchisees.

 

How Do Franchise Businesses Work?

Investing in a franchise business requires more than simply writing a check. Before a contract is signed, both the franchisor and potential franchisee carefully vet one another to make sure the business relationship will be a good match. Even so, contracts aren’t permanent; most last for five to 30 years before they must be renewed.

In return for initial fees plus ongoing annual fees, franchisors provide franchisees with a stable, tested way of running a business. Many franchise businesses offer established brands with proven customer appeal. Others may be new or less familiar, with no guarantee of success. 

Franchise businesses provide expert assistance every step of the way to help new franchisees get up and running. This often includes such things as:

  • Providing professional site selection services
  • Arranging financing
  • Planning the store layout
  • Selecting equipment
  • Assisting with bookkeeping and local and federal reporting requirements
  • Training the franchisee and their staff
  • Providing operating manuals and brand standards


Once a franchisee’s location is open, the franchise business continues to support the franchisee through such activities as:

  • Monitoring the business’s progress
  • Providing quality control
  • Offering continuing advice
  • Creating marketing campaigns
  • Developing new products or services to promote greater success 

It should be noted that franchisees are not only entitled to use the franchisor’s operating methods; they are required to. This helps maintain the desired consistency between franchise locations, but it restricts the ability of each franchisee to innovate.

What Is a Franchise Business?

A franchise business is a type of business that licenses the rights to sell its products or services under its name brand and business model. The owner of a franchise business is called a franchisor, while the licensee is known as a franchisee. Many locations of common retail chains such as McDonald’s and Jiffy Lube are operated by franchisees instead of being owned by the parent company.

Much of the value of a franchise business is in its familiar name brand. Many customers return to franchise business chains they have patronized in the past because they are confident, they will have the same satisfying experience at any location.

A franchise business model is well suited for businesses that want to increase the number of their locations or expand into new territory. They can do so with fewer capital requirements, which are paid by franchisees.

 

How Do Franchise Businesses Work?

Investing in a franchise business requires more than simply writing a check. Before a contract is signed, both the franchisor and potential franchisee carefully vet one another to make sure the business relationship will be a good match. Even so, contracts aren’t permanent; most last for five to 30 years before they must be renewed.

In return for initial fees plus ongoing annual fees, franchisors provide franchisees with a stable, tested way of running a business. Many franchise businesses offer established brands with proven customer appeal. Others may be new or less familiar, with no guarantee of success. 

Franchise businesses provide expert assistance every step of the way to help new franchisees get up and running. This often includes such things as:

  • Providing professional site selection services
  • Arranging financing
  • Planning the store layout
  • Selecting equipment
  • Assisting with bookkeeping and local and federal reporting requirements
  • Training the franchisee and their staff
  • Providing operating manuals and brand standards


Once a franchisee’s location is open, the franchise business continues to support the franchisee through such activities as:

  • Monitoring the business’s progress
  • Providing quality control
  • Offering continuing advice
  • Creating marketing campaigns
  • Developing new products or services to promote greater success 

It should be noted that franchisees are not only entitled to use the franchisor’s operating methods; they are required to. This helps maintain the desired consistency between franchise locations, but it restricts the ability of each franchisee to innovate.