How Does a Franchise Work? – 2022: A Basic Guide to Franchising

June 24, 2021

How does a franchise work to minimize the volatility inherent in opening a new business? Franchising is a way to get a head start in the business world because you bypass so much of the legwork associated with starting a business from scratch. When you become a franchisee, all you have to worry about is running your business to the standards set forth by the franchisor – and turn a profit.

Learn everything you need to know about the basics of franchising in 2021. Find out the ins and outs of the franchisor and franchisee relationship, and how you work as a team to make your business profitable. And, see how to start a franchise business for the most profit and smallest upfront costs.

How Does a Franchise Work? The Total Beginners Guide to Franchising

If you’re asking yourself, “how does a franchise work?” odds are you have an entrepreneurial interest. Franchising is more popular than ever in 2021 because it provides new business owners a stable trajectory for success and profitability. Unlike starting your own business from scratch, franchising provides you with all the basics needed to start.

The partnership between franchisor and franchisee is vital to the success of the business, on both sides. A franchisor provides the franchisee with branding rights and materials, operating procedures, and many other guidelines. The franchisee agrees to uphold these guidelines and procedures and to pay a percentage of sales to the franchisor.

How Do I Pick a Franchise?

Before you get into the purchasing agreement, it's good to weigh the pros and cons of any franchise brand and the details of owning their brand. Some franchises require a much higher starting cost than others, including employees, product inventory, and more. If it is your first business, look for a franchise opportunity that requires a small upfront cost and small workforce requirements.

How to Buy Your Franchise

Once you choose your ideal franchise partner they will require you to complete an application and secure finding process. After you are approved by the franchisor, you work with them in partnership to get the business open and operating. The partnership begins with the franchise paying an initial startup fee, and the franchisor provides assistance to find an ideal location and negotiate the price.

How Does the Franchisor and Franchisee Relationship Work?

Finally, the franchisor is responsible for training the franchisee on how to run the business. Before the business is up and running, the franchisee understands how to operate the business from every end. And, they are clear on the franchisee's responsibility to uphold the brand standards and procedures.

Once the business is operational the franchisee pays a certain percentage of the total sales to the corporate franchisor. This fee pays for ongoing marketing and advertising support, product development, operational support and so much more. It is a win-win relationship for both parties and provides a tangible means of running a local self-owned small business.

Single-Unit vs Multi-Unit vs Regional Franchise Ownership Models

The specific terms and conditions of a franchise partnership vary for every franchise. But the ownership models all fall into one of three basic categories: single-unit, multi-unit, or regional ownership. And the basic differences between them are somewhat self-explanatory.

Most new franchisees agree to a single-unit ownership contract. In this basic type of franchise ownership model, the franchisor grants the right to own and operate a single franchise location within a region. Once a franchisee learns the ropes at the first location, they will often expand their ownership to a multi-unit model.

A multi-unit franchise ownership model extends the rights granted to a franchisee to own multiple franchised locations. The locations might be in the same region or they can be far away in another state. It is still a single franchise system, so each location remains the same franchised brand.

Sometimes, a franchisor grants a franchisee the right to have ownership over the brand locations for an entire region. In this regional ownership model, the franchisee takes on a limited amount of corporate responsibilities within the territory allotted by the corporate franchise. The Regional owner then can grant single-unit franchisee contracts to qualified applicants in the designated area.

How Do You Get Started as a Franchise Owner?

Working your way up to a regional ownership model takes time, but the best way to be successful is to pick the right franchise for you. Look for a franchise model with few employees, minimal operating costs, and scalable potential. Sometimes, a franchise can be just as successful in servicing other businesses as a franchise that services customers.

As the country begins to reopen, there is no better time to decide to become a business owner. And, a franchise partnership provides a practical and expedited means by which to start your business venture. If you still are wondering, “how does a franchise work?” contact an associate to learn more about franchising opportunities with Creative Colors International.