Franchisor versus franchisee: The different roles in a franchise

Franchisor versus franchisee: The different roles in a franchise

The franchise business model defines the guidelines for the sale of products or the provision of services. Before starting the business, the franchisee signed a franchise contract, which is a legal contract. <! – ->

The franchise agreement gives the franchisee the right to run the business. Is it a blast that the franchise business will be successful?

According to statistics from the Small Business Administration, a franchise company has a better chance of success than a solo new business. However, this is only possible if the franchisor and the franchisee understand their roles and adhere to the system.

<! – -> Both sides must be equally committed to be successful. There is no guarantee of success, even with a thriving, pre-determined unit.

What is the difference between a franchisee and a franchisor?

Who is who? According to the franchising definition, the franchisor is the person who started a successful company and decided to expand by selling clones of the original business. The franchisee is the person who buys the franchise.

For example, Jane Kennel Suites opens a unique dog boarding company. Each dog has its own suite, similar to a hotel room, with a private fenced area. Individual attention and much of it is the focus of the business. Kennel Suites has been extremely successful because pet owners are thrilled that their pets receive such personal attention.

Jane decides that her business model can work successfully anywhere. She becomes a franchisor and starts looking for and recruiting franchisees.

There is often confusion between the definitions of franchise and license. A license is a right to use a trademark. The licensee pays a license fee for the use of a trademark, and the licensee can also decide how the trademark should be marketed and sold. <! – ->

The franchise is a specially defined legal relationship. These are brand logos, which differ from a license for a brand. And although it operates as an independent branch, the franchise must be managed according to established guidelines.

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Roles and responsibilities of franchisors

The franchisor is the person who has a successful business model and the right to use that model sold to another person or organization.

<! – -> The franchisor has set up the original business system and must now set up the franchise system. What roles and responsibilities does the franchisor have?

  • Provision of the FDD (Financial Disclosure Document). The franchisor should make these documents available to potential franchisees. The document contains information about profit and loss, business costs and other costs. It should also include biographical and professional information about the seller, litigation or bankruptcy information, and definition of fees. The fees can include initial fees and ongoing fees.
  • Check franchisees. One of a franchisor's biggest mistakes is deciding to sell the franchise because the franchisee has enough money. Yes, for the franchise company to be successful in the future, the franchisee must have sufficient funds. The franchisee must also have excellent work ethic, skills in hiring and training staff, and experience in running a business.
  • site selection. The franchisor knows why the business was successful in a certain population. The franchisor wants to select a website that is suitable for franchisees to succeed. The websites should be positioned so that there is no competition between franchisees. For example, Jane from Kennel Suites knows from research that future Kennel Suites should be in upscale urban areas to have the best chance of developing. She thinks of it when making decisions about expansion, not just in her state but at the national level.
  • Training and support. For franchising to work, training and support must continue. It can be offered in a number of ways, including financial support, administrative services, and the use of established marketing and advertising measures. According to the contract between the franchisor and the franchisee, the franchisee must know in advance whether there are any fees for training and support.

Roles and responsibilities of the franchisee

The franchisee definition is the person or organization that buys the franchise from the franchisor.

The franchisee is responsible for operating the business and generating a profit. According to their contractual agreements, franchisees must operate the business system in a prescribed manner, otherwise the franchise system will not work.

The tasks of the franchisee include:

  • Protection of the franchise brand. The franchisees must operate the business in such a way that the reputation of the franchisee is preserved. One of the disadvantages of the system is that one person's actions can affect many others.
  • Establishment of the business. Franchising is not a magic carpet for business success. Like growing a business, long hours, frustrations, setbacks, and financial problems are part of the game. But one of the advantages of franchising is that you are not alone. Franchisors have already set your path. Along with the right to run the business, there is the right to get support when needed.
  • Hiring and training employees. Franchisors have followed this path and know how important this process is for the success of the company. The franchising business model should include guidelines for hiring and maintaining employees, and an employee handbook. It is a great advantage to have a pre-created employee handbook that has already been approved by a person's HR and legal departments.
  • Advertising and marketing – franchisors most often provide these materials and the rights of use. A percentage fee may apply for advertising and marketing. There may also be restrictions on the use of these materials.


Becoming part of franchising is not for everyone. But if you got the answer to “ What is a franchise? “Like – buying a company with a proven track record and letting it work for you – then it may be just the thing for you to get involved in franchising.

One of the most important aspects of franchising is mutual review. Both sides will make considerable financial investments. Before signing a contract, an investor or franchisor should use the services of a lawyer or advisor who is knowledgeable in franchising.


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Advantages and disadvantages of franchising (as a buyer)

Advantages and disadvantages of franchising (as a buyer)

Buying a franchise may be a very profitable way of owning your own business. The franchisor cannot guarantee that the franchise owner is successful. However, studies on the franchise business model have shown that franchisees are more likely to be successful than if they had started their own business. <! – ->

Advantages of buying a franchise

Some of the advantages of franchise ownership could be considered disadvantages by some business owners. For example, if you are listed under "Professionals" for reasons of buying a franchise, you may see the following statements:

  • The franchise system contains guidelines that allow you to operate the business using the franchise standards.
  • They only offer approved products and services as specified in the business model.
  • Your company trains employees according to the operating guidelines of the franchise company in accordance with the training manual.
  • You will promote and promote the franchise and its approved products and services as defined by the franchisor.

But when you weigh the pros and cons of franchising, what if you consider these things to be disadvantages? Are you the type of person who would feel like working in this way would feel restrictive?

<! – -> “As a franchisee, you agree to follow someone else's operating system, often including specific requirements regarding the marketing materials to be used and the suppliers you need to work with and which specific ones Products and services you have to offer, ”said Len Rainford .

Rainford, with several books published (including Buying a Franchise – The Key to Success) and 35 years of experience in franchising, said that someone planning to buy a franchise should consider these items as franchising benefits.

"If you are more committed to franchising, it is important that you take some time to analyze yourself from a personal and business perspective," said Rainford. "A well-structured franchising business system offers a level of support that contributes to the success of the franchise."

Advantages of Franchising

Systems and Support

May include business location selection and development support, training for franchisees and their management teams, franchisor support during the buying process, and research and development for new franchise products and services. <! – ->

You work with a business blueprint that was specially developed for franchisees. If you have a business plan, you can avoid typical mistakes made by small business owners.

Franchisees will operate in a protected area, which is not the case for typical small business startups. A franchisor is very careful about where the company is located, which is one of the biggest advantages of a franchise.

Financing Your Franchise Business <! – ->

Going to a bank to talk about buying a franchise from a franchisor gives you a much better chance than the average person trying to start a small business from scratch. It is true that new franchisees pay an initial franchise fee for the right to use the company name. But this fee also goes hand in hand with the security and reliability of an established business.

Strong brand

Franchising with a company that has a well-known name has obvious advantages. There is something to consider when considering the advantages and disadvantages of choosing between franchise options.

If your franchise has a household name, you don't have to focus on advertising to build your business. Customers will use your franchise business because they are already familiar with how it looks and how it works.

A brand is one of the most valuable assets of a franchise. Think about it – you're driving on a freeway and see a sign for a cracker barrel restaurant. You already know what it will look like. You know the menu.

As a customer, you decide which company you want to use and how often you want to use it. You make these decisions based on what you've found to be true for the brand. You trust that the company will meet your expectations.

Training and advice

Becoming a franchisee is like a big head start to building a business. Set up administration process? Check. A proven franchise system? Check.

And the biggest pro in weighing up advantages and disadvantages is this – the advice, training and support from the franchisor do not stop. This is because the franchisees operate independently of one another, but the franchisor wants them to be successful.

And it's not just about money. It's also about maintaining the company's reputation. Because the franchise is part of a system, each individual's success benefits the entire system.

Disadvantages of buying a franchise

Being part of a system can also be a disadvantage of franchising.

Consider this hypothetical example: Cuties Curls is a fictional hair salon franchise. A Cuties Curls customer who is an enthusiastic tweeter and poster gets a bad perm. Her experience makes waves (pun intended) on the Internet. Customers are now considering canceling appointments at Cuties Curls salons across the country.

This is one of the disadvantages of buying a franchise. The bad deeds or events in one franchise can negatively impact the other. Even if you run an extremely successful and profitable franchise, you can lose everything due to someone else's bad business decision.

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Disadvantages of franchising

Initial and ongoing fees

After the initial fee, you pay a monthly percentage based on the earnings.

Lack of independence

Once you feel comfortable running the business, you may have ideas on how to change the business. Your plans may be limited by company policies.

Fees and Costs

One of the most important considerations for you should be how much you can afford to spend.

"There is a business model for every budget within franchising," said Len Rainford. "Think about how much you can invest, how much cash you have, and how much you'd be willing to borrow."

Explore the market for the sector you want to be in and explore the franchise.

"Take the time to carefully review the franchise disclosure document," said Rainford. "In addition to claims to profits and financial statements, include any information about litigation or bankruptcy in the document."

In particular, ask about the ongoing fees that you are expected to pay. Talk to people who have the same franchise. If possible, spend time with the person and staff to get a feel for how the business works.

Questions: Are you in the black? Did you pay back your investment? Are there any additional costs? If you had a dispute over fees, how was it dealt with?

Remember that you will have to pay an ongoing license fee after the initial cost. License fees are typically 4 to 6 percent of your gross monthly revenue.

Legal requirements

After you've done all the research, don't stop here. Get advice from experts such as business consultants and lawyers specializing in franchising. Listen to these people and don't let the person selling the franchise put you under pressure.

"Clear, written agreements and contracts can avoid uncertainties and mismatched expectations," said Rainford. "Make sure you read and understand contracts and agreements before you sign them. After signing, contracts are binding and enforceable."

Before the business relationship begins, the contract should include a "dispute settlement process", Rainford said. The procedure should include guidelines for mediation.

"Litigation over trade litigation should be the last resort," said Rainford. "It's expensive, time-consuming, destroys the business relationship, and usually has a winner and a loser."

Your original franchise contract may have a fixed term. Once this expires, you may have to pay an extension fee.

Franchise definitions vary by country

The definition of a franchise is not the same in every state or country. You cannot rely on the federal definition. You need to understand the special requirements of your state.

For example, we know that franchising is a contract between a franchisor (licensor) and a franchisee (licensee). Every franchise is a license. But not every license is a franchise.

If you make major changes to the way the franchise operates, you may have to pay heavy fines. Changes can even give rise to termination of your agreement.

Will the franchise products and services be protected from being used by the general public in the coming years? The term "all rights reserved" is often used by copyright holders to indicate that they have all rights reserved. However, once the copyright for all rights has expired, the work becomes publicly available. This means that after copyright expires, there is no way to stop others from making the product or providing the services.

Before you sign on the dotted line, get expert advice again.


The franchise professionals are on the positive side. Even with a large brand, there is no guarantee of success. However, if you apply hard work and dedication to a proven business model, you are on your way to owning a thriving company.


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What is a franchise? Find out and start your franchise journey

What is a franchise? Find out and start your franchise journey

Imagine your soul mate came home from work and was looking forward to starting a new company. Imagine that the new business involves taking in dog feces. <! – ->

In 1999 Jacob D & # 39; Aniello heard a caller talking about a problem with dog excrement while listening to the radio while on the way to work. When he got home, he eagerly told his fiancé Susan about his plans.

And yes, they were still married. They placed a classified ad in a local newspaper describing a service called DoodyCalls . By 2004, both had quit their jobs and worked full-time at DoodyCalls, headquartered in Charlottesville, Virginia.

<! – -> Overwhelmed by calls, they soon started franchising. Today, DoodyCalls operates in 23 states and covers 57 areas.

The company estimates that more than 10 million “deposits” are collected each year. And a lot of money is also deposited!

What is a franchise?

Simply put, a franchise is a clone. The franchisor is one unit. The franchisor allows another party, the franchisee, to clone the original business. The franchise may include products or services .

The franchisee is the person or company who can do business using the franchisor name and business model. The franchise is normally allowed to do business in a specific location or area, as described by the franchisor.

Franchise business model

The franchisor allows the franchisee to open and operate a branch of the original business. The franchisee has the right to use the brand and the proven business model. <! – ->

Of course, the name of the brand together with the proven business system is not free. Initial and ongoing fees are charged in franchise systems.

In return, the franchisee does not have to start a company from scratch. In addition to the right to use the brand, the franchisee can get advice, training and support while running the franchise.

<! – -> Is it a franchise or a license? In the franchising business the franchisee uses a brand name and a business model. When licensing, a company sells licenses to other companies for the use of intellectual property, brand, design or business program. Licenses can be sold to competing companies.

1st franchise system

Regardless of whether the franchise is a product or a service, the basic fee paid by the franchisee and the ongoing fees are generally based on the turnover of the franchisee. The ongoing fee can only be 4% or 5%, or the fee can be up to 20%.

Franchise fees are often based on the level of support provided by the franchisor. For example, the franchisor can help with invoicing or use the brand to build sales and attract new customers to the franchise.

Would you like to buy a franchise or do you want to franchise your company? Studies have shown that a franchisee is more likely to succeed than someone who starts his own business.

Regardless of the business system, almost any model can become a franchisor. Regardless of whether your company offers services such as a beauty salon, cleaning service, or manufactures a product, you should not consider franchising unless your company is already successful.

Franchising is not a solution for weak companies

Franchising is not a solution to help a difficult company. Franchisees work with the elements of their first successful business such as sales and marketing, human resources, accounting and operations.

If you are considering becoming a franchisor, make sure that it is suitable for a franchise system. Could your company do just as well with someone else who runs it? As a franchisor, can you recruit, train and support the franchisees?

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If a company makes enough profit for a franchisee to make a living, it is ready to become a franchisee. If not, the franchisees cannot pay you, the franchisor. Before you sell others the right to use your company name, you want to make sure that franchisees receive the value of the brand and related services for your franchise.

If you are one of the franchisees, you are responsible for operating the franchise in accordance with the standards set by the franchisor. They represent the brand and must offer excellent customer service.

As one of the franchisees, you are responsible for staff maintenance and training. If the franchisor has included policies to promote the brand or service, you must advertise and advertise as set out in these instructions.

2nd Franchise Disclosure Document

A Franchise Disclosure Document (FDD) is a legal document that is presented to potential buyers of franchisees as part of the pre-sale disclosure process. Before 2007, it was referred to as the Uniform Franchise Offering Circular (UFOC) (or Uniform Franchise Disclosure Document). The legal document was developed by the Federal Trade Commission.

When you think about buying a franchise, you can never have too much information. Read the franchise disclosure document carefully. The franchisor should provide documents to support profit claims in its franchise system.

Franchising is a contractual business relationship. The franchisor sells the franchisee the right to use the brand and the established business method or to provide services to the company for a fee. Each franchise can have different requirements in its business model.

Do you need a lawyer to review the FDD? Before you sign on the dotted line to become a franchisor or buy a franchise, have a lawyer specially trained in franchise contracts review the documents.

The FTC has a franchise rule. According to the franchise rule, a franchisor must provide the franchisee with the information necessary to weigh the risks and benefits of franchising. The franchise rule requires that the disclosure document contain information about 23 specific elements.

Individual states also have laws in their books that relate to franchising and franchising. If you are in the United States and are buying a franchise from another country or planning to operate a franchise in another country, there are undoubtedly additional legal requirements.

3. Due Diligence

Have all franchise companies been successful? Talk to other franchisees to find out what they have learned. Has the franchisor provided the promised support? Have the fees been calculated fairly?

While you are performing the due diligence for the purchase of a franchise, the franchisor also checks your background. Every good franchisor wants the corporate brand to be successful. Before you get the right to become one of the franchise companies, the franchisor wants to know something about you:

  • Are you suitable for franchising?
  • Can you learn new things?
  • Will you meet the requirements for running the business?
  • And are you financially and mentally ready to switch from regular employment to a franchise company?

4th franchise contract

If the review goes well on both sides, both the franchisor and the franchisee sign an agreement. Buying a franchise can be extremely complicated as many lawyers have to think about the agreement.

The agreement should outline the level of involvement and support of the franchisor in the franchise. One of the most attractive facets of franchising is the defined area that reduces competition for franchisees. Ask for information about neighboring franchise companies for the same company and make sure you understand how boundaries are defined.

5. Fees

The franchisee pays an initial franchise purchase fee, typically a flat rate, paid to the franchisor for the right to conduct the business. The franchisee also pays ongoing fees, so-called license fees or commissions. The franchisor may also request that you purchase products or materials that you need to provide services.

6. Current relationship

What is a franchise? It is a new beginning for the franchisee. Once you've overcome research and contractual commitments, buying a franchise is an exciting undertaking. One of the best things about franchising is that you are not alone.

The franchising business model requires a lasting relationship between the parties that often lasts a decade or more. Both sides must meet contractual obligations and work together for the franchise to be successful.


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