When you buy a franchise, you’re really buying a franchisor’s business model or franchise business plan. This model has gone through many iterations throughout history, but at its heart, it remains the same: the franchisee pays for the franchisor’s intellectual property (IP) so they can independently own a franchise branch.
All franchises follow a common model. Here, we’ll discuss what franchising is and how it differs from owning a business before delving into the franchise business model itself. In the end, we’ll offer useful advice if you’re planning to buy a franchise.
What is franchising and how is it different from owning your own business?
Franchising is owning a branch of a franchise that uses its IP. This can include trademarks, the brand name, products and services — its business model. The franchisee gets all this in exchange for a fee paid to the franchisor. When you buy a franchise, you sign a legal agreement (called a franchise agreement) that outlines your rights as a franchisee in exchange for this IP. This is also often referred to as the franchising code.
Owning a franchise is similar to owning a small business, but they’re not quite the same thing. While you operate a franchise somewhat independently, it doesn’t offer the same level of freedom as owning a business, which you completely own. When you own a business, you’re the sole business owner. The primary consideration involved in choosing between the two is risk: whereas a small business must create its own intellectual property, marketing strategies and business model, a franchise provides these for you from the get-go.
Franchising isn’t for everyone, and you might prefer the total freedom of owning your own business. Before you get started franchising, decide if it’s right for you.
A brief history of the franchise system
To better understand the franchise model, it helps to understand where it all started: The Middle Ages. The earliest franchises were held in fiefdoms, giving rich landowners and church officials protection from understandably angry citizens who were forced to pay high taxes. The local governments would offer this protection in exchange for a fee. This is one of the earliest known examples of the franchise business model.
What is the franchise business model?
The franchise business model is the heart of any franchise agreement. While the particulars may vary between franchises, the core components are generally the same.
It’s very likely you already understand the franchise model just by casually observing it. Take a classic franchise such as McDonald’s.
Originally, there was one McDonald’s. Soon after, there were several McDonald’s. While each McDonald’s was independently owned and operated, they still shared similar menus, advertising strategies and the same intellectual property. This is the franchise business model in action.
The original McDonald’s was founded by Dick and Mac McDonald, but it was Ray Kroc who turned it into a franchise. Soon, Ray Kroc would own the rights to the McDonald’s name and IP, and McDonald’s franchises would be worldwide. Before Kroc passed away in 1984, he owned the entirety of the McDonald’s franchise and created the fast food behemoth it is today.
What the franchisor gets out of the franchise agreement
People who wanted to own their own McDonald’s had to sign a franchise agreement before they could start their operation. In any franchise agreement are the terms, conditions and rules involved in owning a franchise. Ideally, this is a mutually beneficial agreement: The franchisee purchases the IP of the franchisor, owns the franchise, and pays an initial franchise fee (and other contributions) to the franchisor.
It is wise to learn about franchise agreements and other franchise contracts before you get to that point. This document will determine your relationship with the franchisor: What you get out of it, what they get out of it and what you’re expected to do.
It’s a practice that’s been around for centuries: The franchisor then gets to see the franchise grow and earn a profit from all its franchisees.
Find out more: Ready to explore franchise opportunities in Australia? Discover franchises that match your goals and lifestyle.
How to get started franchising
Getting started franchising is a simple process in theory, though a bit more detailed in practice. If you want to apply to be a franchisee, you must find a platform that franchisors advertise on. We have over 700 brands that advertise with us, so you can start by exploring options on our site.
It’s best to first start thinking about what kind of franchise you want to own. Generally, the franchises you should apply for are brands that match your passions and values. So if you’re a fitness enthusiast, it’s probably a good idea to start looking at franchises related to fitness — especially those whose brand values match your personal values.
While thinking along these lines helps you find a good fit, it’s also what the franchisor expects if you decide to buy. Applying to be a prospective franchisee is similar to a job application. You’ll almost certainly have competition for the position, and you’ll want to stand out as much as possible to show the franchisor you’re the best person for the job.
If you successfully convince the franchisor that you have what it takes to manage a successful franchise, you go into the negotiation process, starting with the franchise agreement.
Buying a franchise might seem intimidating, but it doesn’t have to be. Take your time and learn about all the different things that go into a franchise model so you know what you’re getting into. Get it all down and you’ll be a proud franchise owner and success story.
Find out more: If you’d like to understand more about the franchise agreement, you can read our helpful guide.
Start owning a franchise and take part in the franchise business model
At BusinessesForSale.com, we have a wide range of resources to help get you started owning a franchise — and becoming an active player in the franchise business model. In addition to a comprehensive database of potential franchise opportunities for you to search, we offer a variety of detailed guides to prepare you for franchise ownership. Explore our listings today and see which franchise opportunity catches your eye.