What Is A Franchise And How Does It Work?

by | Jul 1, 2024 | Franchise | 0 comments

What is a franchise? Great question! A franchise is a business model that allows an individual owner (the “franchisee”) to open their own location of a tested model. A great example of this is McDonalds! Most McDonald’s locations are owned by an individual in that community that has entered into an agreement with the owner of the whole business concept or franchise (the “franchisor”) to open their own McDonalds restaurant.

That means the franchisee pays the rent, recruits and trains their own employees, and is responsible for managing the supply and demand of their location. It also means that the franchisee will make the profits if they are selling the most burgers around. It also means that the franchisee has the benefits of the branding, operations model, and support of the whole McDonalds enterprise (the franchisor), in exchange for paying them a royalty.

As a contrast, opening your own business – not a franchise – would involve envisioning the entire concept start to finish; from the logo to the menu to the layout of the restaurant to figuring out insurance and bookkeeping. A business owner has to wear a lot of hats!

The risk of opening a franchise versus opening a brand new business is quite different as well. Independent new businesses are subject to a much higher risk of closing within their first 5 years, while franchised businesses have significantly lower rates of closure. There are many factors involved in determining the sustainability of a business, but certainly the support of a successful and proven model and corporate team make a significant difference.

You could think of it like a car: with a franchise model, you’re driving your own car, but it’s a model that’s been road-tested and proven to go the distance. With your own business, you’re ready to innovate, build your own car from scratch, and see how it does on the road.

If you have questions about these models and you’d like to chat with someone who knows the ins and outs, give us a call.