Understanding the basics of ‘Business Format Franchising’

The term ‘Franchising’ has been derived from the terminology ‘Business Format Franchising’ and is now commonly used globally. Business format franchising is nothing but the procedure through which one person (the franchisor) grants a license to another person (the franchisee), which holds the franchisee liable to trade under the trademark or trade name of the franchisor. The franchisee can also make use of all the elements required to set up a business and operate it with constant assistance on a pre-determined basis.

The British Franchise Association (BFA) is a self-governing body voluntarily establish with a view to set rules and regulations for franchising in the UK. The BFA regards the term ‘franchising’ as a process through which different forms of business relationships are born. These include licensing, distributorship as well as agency arrangements.

Every business outlet is owned and managed by the franchisee, except the controlling function in terms of marketing and selling of the products and services, which is held by the franchisor himself. The franchisor also retains the control on the quality and standards of the business.

The franchisee makes a payment of an initial fee and ongoing management service fees to the franchisor at the outset. The service fees are estimated on the basis of a percentage of annual turnovers. The franchisor, on the other hand, is responsible to provide the support function to the franchisee in terms of training, product development, advertising, promotion and other management services.