A franchise is an agreement in which a party (franchisor) shares business knowledge, trademarks, techniques and other unique selling points with another party (franchisee). The franchisee then may operate under the franchisor’s name and carry on a separate business but within the perimeters set by the franchisor.
A franchisor therefore can be any business identity that allows other people (Investors) to buy their name. They shall give them valuable inside information, procedures, techniques and tactics. The franchisor has an established brand name and a particular theme to his business and as a result the franchisee is ought to strictly follow all rules and regulations set by the franchisor.
The franchisor makes the franchisee pay first for the goodwill of his business. This is a franchising fee paid by the franchisee to the franchisor just to buy the franchisor’s name and operate in the same way as the franchisor. Besides that the franchisor may also make the franchisee sign a contract that makes the franchisee pay a certain sum of all profits it makes in a certain period.
Being the franchisor is not free from its risks. A franchisor gives its name to the franchisee. Now everyone knows the franchisor and the franchisee under the same name. So if the franchisee makes any mistake in performing his duties and damages its reputation due to any circumstances the franchisor shall also bear the loss. The franchisor’s public image shall be destroyed and his business shall suffer dearly.
Other than that it’s advantageous for him as well. The franchisee would under good conditions carry on the reputation of the franchisor. The franchisor will get profits made by the franchisee as well. The franchisor’s name would spread without him personally making an investment. Growth deemed as the key to improvement, franchisor shall grow and become prosperous due to franchising.
Most popular franchisors of 2011 were Hampton Hotels, Subway, 7-Eleven Inc., Servpro, Days inn, McDonalds, etc.