How Does a Franchise Work?

Owning your own business comes with many perks, but there are also plenty of risks when starting completely from scratch. Investing in a franchise is a great way for entrepreneurs to get their foot in the door in new markets and can offer a more stable path to success.

But how does franchising work, and would becoming a franchisee be worthwhile for you?

What is a Franchise?

A franchise is a business whereby an existing, successful company or brand gives the rights to an individual to use their trademarks, branding, products and market expertise. The individual operates under the company’s name, benefiting from their brand recognition and business model in exchange for a franchise fee.

The most common and recognisable franchise examples are found in the retail industry, with something like a fast food or coffee franchise offering abundant opportunities for budding franchisees.

Understanding the Franchise Model

There are many advantages to franchising for all parties involved.

The franchise business model allows a company to expand their reach and increase their market share by providing individuals with the legal rights to operate under their name, who in turn receive all the benefits of the established brand.

Individuals licensed under the franchise agreement can then operate the business, essentially becoming their own boss – the level of freedom for the investor will depend on the particular franchise, but there will always be certain guidelines to uphold the brand’s image and ensure success.

The model is based on a mutually beneficial relationship between the franchisor and the franchisee.

The franchise business model explained

The Franchisor

This is the original company that allows entrepreneurs to do business under their name. They will provide support and expertise to help make each new brand a success from the start.

The Franchisee

This is the individual who buys a franchised business (or multiple businesses) and is in charge of running it and securing profit. The franchisee will pay the franchisor an agreed-upon fee and on-going royalties to use their name, image and operational models etc.

A group of people reviewing graphs around a table

The Franchise Agreement

What exactly is included in a franchise agreement will depend on which business you want to franchise with. Typically, a franchisor’s role in the agreement will include things like providing help with:

  • A proven business model and operational systems
  • Brand recognition
  • A built-in customer base and brand loyalty
  • Branding
  • Marketing
  • Site procurement
  • Store design
  • Product offerings
  • Supplier contracts
  • Training
  • Industry expertise and on-going support

The franchisee’s part in the agreement includes paying an upfront fee to operate under the franchisor’s name and get access to everything mentioned above, along with any on-going royalties based on sales.

Both parties must uphold their terms outlined in the agreement or risk facing legal consequences for a breach of contract.

Different Types of Franchise Agreements

The franchise agreement will also outline how many stores or locations the franchisee is authorised to operate. Single-store franchises are most common for those new to the game, but franchisees can also invest in regional or master franchise licences that give them authority to develop an entire territory.

What are the different types of franchise agreements?

Who Can Become a Franchisee?

Again, the exact requirements for buying a franchise will depend on the business, but there is no special qualification you need to buy a franchise! The main thing that’s required to become a franchisee is, unsurprisingly, enough initial capital to pay the franchise fee so you can get up and running.

You will also need to set out a franchise business plan so you can secure a deal with a lender. This will outline the business’s structure and operations and your financial projections.

To become a really great franchisee, you’ll also need a strong entrepreneurial spirit and work ethic. While the franchisor may oversee your franchise somewhat, you’re in charge of managing it and running it day-to-day.

Applying For an Esquires Coffee Franchise

If you think a franchise might be the right fit for you, you’re in the right place! Esquires Coffee offers a range of coffee franchise opportunities for enthusiastic entrepreneurs who share our passion for ethical coffee shops and unbeatable coffee.

Whether you’re interested in opening a single store or have grand plans for a multi-store or master franchise licence, we can help you on your franchising journey. Learn more about buying a franchise with us in the article below, or apply now to find success with Esquires.