Franchise Basics: What Is A Franchise?

April 22, 2020

, by

Joshua Kovacs

What is a Franchise

A franchise is a form of business arrangement where a business (the franchisor) provides the rights to another business or individual (franchisee) to operate under their name and utilize their IP and business procedures in exchange for upfront and ongoing fees. Franchise arrangements are all around us from gas stations to hair salons there are over 730,000 franchised businesses in the US alone.

Why is this business arrangement so popular?

Many businesses understand that in order for them to expand into new markets they need to partner with business people who know the local market better than them and have a vested interest in the success of their business, both of these issues are addressed with a franchise agreement. For entrepreneurs who buy franchises, they are a way to capitalize on another firms brand and business procedures. They allow entrepreneurs to share in the success of another brand while also getting to market more quickly than creating a concept from the ground up.

Franchise History

Believe it or not Franchising is not a new concept. Even though Franchising probably brings up images of McDonalds or Subway the concept has been around for hundreds of years. 

The first modern example of Franchising started with Isaac Singer. He was an inventor that created an advanced sewing machine and needed a scalable way of selling it. He created a business arrangement in which he would sell distribution rights to business people to sell his machines in specific geographic areas and a fee was paid up front for the rights to do so (Franchise Fee).

For many years franchising was any business arrangement in which someone was provided the right to use a firm’s business model and it’s marks for a prescribed period of time typically in exchange for up front fees and a continuing payment (Royalty). 

Many countries and their territories/states now regulate franchising and therefore provide a definition of what a franchise is to ensure there is no confusion (other business models like licensing are similar). In the United States franchising is regulated by the Federal Trade Commission (FTC) who define franchises as:

a commercial business arrangement is a “franchise” if it satisfies three definitional elements. 

Specifically, the franchisor must:

(1) promise to provide a trademark or other commercial symbol;

(2) promise to exercise significant control or provide significant assistance in the operation of the business; and

(3) require a minimum payment of at least $500 during the first six months of operations. 

So now that we know what a Franchise is, why would you buy one? 

When you buy a franchise, you are able to sell goods and services that have name recognition, utilize market tested operations, as well as receive training and support from an experienced party to help you succeed. 

Source: https://www.ftc.gov/system/files/documents/plain-language/bus70-franchise-rule-compliance-guide.pdf

If Interested in learning more about Franchising or how to buy one check out: 

https://www.ftc.gov/tips-advice/business-center/guidance/consumers-guide-buying-franchise

<< Back to Franchise News

Other Articles

Fast Growing Pet Franchise Denver 2022

Fast Growing Dog Daycare Franchise Secures First Location in Denver

September 20, 2022
Read Article
Veterinary Franchise

PetWellClinic Franchise Signs 3 Unit Deal To Provide Pet Care in NorthEast Massachusetts

June 21, 2022
Read Article
Dog daycare franchise

Dogdrop Franchise Inks 5 Unit Deal in Denver Colorado

June 9, 2022
Read Article
Pet-Care Franchise

Fast Growing Pet-Care Franchise Expands To Salt Lake City

March 29, 2022
Read Article
emerging petcare franchise

PetWellClinic Expands To Philadelphia Area with Goldfish Swimschool Franchisees

February 11, 2022
Read Article
Fast growing pet care franchise

Fast Growing PetCare Franchise PetWellClinic Surpasses 100 Units In Development

January 11, 2022
Read Article
fast growing petcare franchise

Walk-In Veterinary Franchise PetWellClinic Expands to New Orleans

December 8, 2021
Read Article
Pet Care Franchise Expands To Phoenix

Fast Growing Petcare Franchise PetWellClinic Heads To Phoenix

November 29, 2021
Read Article
PetCare Franchise

Modern Veterinary Franchise Expands to Southern Orange County

November 10, 2021
Read Article
start a franchise right now

The History of The Word Franchising (And How It Impacts Your Career Path)

November 1, 2021
Read Article
start a franchise right now

Openness and Optimism: Finding the Right Franchise

October 25, 2021
Read Article
Pet Franchise

How PetWellClinic Is Rethinking Modern Veterinary Care

October 19, 2021
Read Article