This article will deal with the definition of franchising.

Franchising is the practice where a company makes, the other party to use the successful business model of the company. The franchisor (the company that provides business solutions) and the franchisee (the entity that uses it) into a contract to use and exploit the successful business model of the company and / or the current brand awareness (often called goodwill) for a faster return of capital.

Instead, franchisees pay two payments in general. First is a one time payment, called a franchise fee, and the other is the Commission, which is a recurring expense, for continuous usage, business models, advertising and training costs. Royalty is usually 3-10% of the total.

That’s pretty much what franchising is.

One common misconception about franchising is the statement, “I’m buying a franchise.”. You are not buying, you are capitalizing on the business model. There you will have the physical assests needed to respond to a franchise, such as buildings and equipment.

For a business to work as a franchisor, it must have a good track record of profitability and business system it employs is easily duplicable. Otherwise, the company is not suitable for franchising.

What’s so great about franchising?

For the franchisor, the business can grow and get more branches than reducing traditional risk and responsibility to do so. It is also a great way to get more brand recognition and reputation.

For the franchisee, they are investing in an already proven business model and recognized brand. In fact, franchising business is 90% proved successful. With a success rate like that, that can go wrong?