Franchisor Definition - What is a Franchisor? A Complete Guide

06/04/2019 13:00 | Start a business

franchisor definition guide

Originally uploaded on 03/08/2017. Updated on 06/04/2019.

A franchisor is a person or company that grants the licence to a third party for the conducting of business under their brand name. The franchisor owns the overall rights and trademarks of the company and allows its franchisees to use these rights and trademarks to do business.

The main element of being a franchisor is creating and developing relationships with your franchisee partners and, together, expanding your brand in ways that would be unachievable on your own. You essentially become the leader, directing your franchisees to achieve operational consistency and brand integrity. Trust is essential for a successful franchising relationship - your franchisees will trust you to support and guide them and you’ll trust them to run their franchise honourably.

Franchising contributes massively to the UK economy. According to the 2018 BFA-NatWest Franchise survey, the UK franchise industry has created 710,000 jobs and is currently worth £17 billion. Profits are high for franchisees, at 93 percent, with 60 percent of franchisees having a turnover of more than £250,000 annually. In comparison to independent business start-ups, the failure rate for franchisees remains low, with less than one percent of franchises closing due to failure. The last seven years in particular have been ground-breaking for the franchise industry - almost 48,000 franchise units currently operate in the UK, which is an increase of almost 25 percent since 2011.

With the franchise industry seeming to be remarkably recession-proof, it appears that now is a great time to consider becoming a franchisor.

Franchising vs Simply Selling Your Business

How do you know whether to become a franchisor or simply to sell your business? The first question to consider is whether your business is ‘franchiseable’. Franchising is a flexible format and all types of businesses can be franchised. There are some basic characteristics, however, that must be met. Your business needs to be credible, unique, teachable and provide an adequate return. If your business meets the British Franchise Association criteria, then franchising offers a great opportunity to grow your business fast and an alternative to selling your business if money, time or resources are an issue.

There is a myriad of advantages to franchising your business:

1. Grow your business. Franchising is a cost-effective way to expand your business. Franchisees take responsibility for the cost of new premises and staff which means you don’t need to spend your own capital or secure additional funding.

2. Management delegation. If you choose passionate, enthusiastic franchisees then they should be motivated to make a success of their business. By not having direct managing responsibilities, you will have more freedom to develop your operating systems and brand expansion strategy.

3. Money maker. As the franchisor, you’ll receive ongoing payment from the franchisee. While the franchisee meets all the costs and collects the income, you’ll receive franchise fees and royalties or a mark-up on products sold by the franchisee.

What does a franchisor have to do?

Now that you know the advantages of franchising your business and you’re certain that becoming a franchisor is for you, you need to be aware of your obligations. Here are five key roles and responsibilities that a franchisor must undertake:

1. Select qualified franchisees. Fundamentally, it’s your business and so it’s in your interest to choose franchisees who understand your franchise's concept and are committed to operating the system according to the established standards. People may have the necessary capital to operate their own business, but may not have the qualifications to follow an established system, which is paramount to the successful running of the franchise.

Don’t be hasty and recruit the first potential franchisee that shows an interest. As a franchisor, you should be aware of where the franchisee is getting their funding and what their repayment terms are. If the franchisee can’t fund their new business adequately, then this will cause problems in the long run. Lastly, your chosen franchisee should be entrepreneurial minded, but not so much that they cannot work within your specified franchise system.

2. Give your franchisees access to your expertise. As a franchisor, it’s your job to pass on your knowledge and expertise to the franchisee to ensure their success, as well as the success of the entire system. Franchisees will look to the franchisor to provide training for them and their teams to ensure that all staff understand their role in the franchised operation. And this support doesn’t stop when the franchise is up and running. Most franchise agreements require franchisors to provide ongoing support to franchisees. This includes technical and day-to-day operating advice. Part of this franchisor responsibility helps to oversee the entire operations of the franchise network.

3. Protect your brand. Your branding is what will make your franchise system stand out from the competition. Your brand must be consistent and robust, otherwise, money spent on advertising will be wasted if the customer cannot trust the brand. If the brand does not resonate with its audience, the entire franchise system suffers.

4. Develop marketing standards. As a franchisor, one of your primary responsibilities will be to develop marketing standards for promoting your brand, legally protecting your trademarks and establishing quality standards for your products and/or services.

5. Be a great communicator. The franchisor-franchisee relationship is the key to the success of the business. As a franchisor, you need to regularly inform franchisees of new ideas, marketing and training updates. Communication holds the same value as customer service - if you don’t have good customer service skills, you probably don’t have good communication skills. Without communications skills, the franchise system will not survive.

And this is just the start. There is much more to franchising. As a start-up or experienced franchisor, it’s important to understand that franchising your business is a continuous journey of improving business systems and expanding your brand. Ensure you speak to a proper franchise solicitor, a franchise consultant and the franchise departments of your bank – all as a minimum. Use a British Franchise Association accredited solicitor who can advise you on the correct steps to take to start the franchising adventure.