The franchise business model
A basic overview of how to start your new business by buying a franchise and what to know before signing an agreement.
A franchise is a business model, not a legal structure. It can operate under a legal structure, like a sole trader, a partnership, or a limited company. See:
Buying a franchise is a way of taking advantage of the success of an established business. As the 'franchisee', you buy a licence to use the name, products and services of the 'franchisor' business. This licence usually covers a specific geographical area and runs for a limited time. It should be renewable if you meet the franchise agreement's terms.
Franchise agreements usually set out how the franchised business should be run, although they may allow some flexibility. With no franchise laws, the franchise agreement defines the rights and duties of the franchisor and franchisee, and their relationship.
Don't sign any agreement or pay any fees or deposits until you have taken legal advice.
You may pay for the franchise via:
- an initial fee
- ongoing management fees
- a percentage of your turnover
- purchases from the franchisor
- a combination of these
You often pay a percentage of your turnover to the franchisor, which reduces your overall profits.
For further information see how to buy a franchise.