Glossary to Franchising Business in the UK
Business Format Franchising
The franchisor licenses the franchisee a complete plan – a business format, operating system and trademark to his/her franchise, including step-by-step procedures for major aspects of the business, and anticipating most management problems, provides a complete matrix for management decisions confronted by the franchisees.
It is a franchise that permits existing businesses to join a national franchise system to use its recognised name, trademark and operating system.
A franchise is a grant by the franchisor to the franchisee, entitling the latter to the use of a complete business package containing all the elements necessary to establish a previously untrained person in the franchised business, to enable him or her to run it on an ongoing basis, according to guidelines supplied, efficiently and profitably.
It is a one-time fee paid by the franchisee to ‘buy into’ the franchise. Generally, the fee reimburses the franchisor for the costs of initial training and support for new franchisees.
Neither an industry nor a business, rather franchising is a method of doing business within a given industry. At least two parties are involved in it: the franchisor and the franchisee. Technically, the contract binding the two parties is the franchise.
The franchisor owns the business system and associated trademarks or trade names. Franchisors allow franchisees to use these under license in a designated area and for a fee. They then support their franchisees, both in starting their business and in continuing to make it work.
The franchisee buys the right to run the business using the trademark and trading system. The business is run according to the procedures set out in the franchise operating manual and under the terms of the franchisee agreement.
The franchisor grants the master franchisee the right to act as the franchisor in the target territory. The master franchisee may open his or her own outlets, sub-franchise or do both. The primary advantages to the franchisor of master licensing are limited capital investment; tapping into the master franchisee’s knowledge of the local market and only having to deal with one party.