Everything Franchising

The company that allows an individual (known as the franchisee) to run a location of their business. The franchisor owns the overarching company, trademarks and products, but gives the rights to the franchisee to run the franchise location, in return for an agreed-upon fee.

One who purchases a franchise. The franchisee then runs that location of the purchased business. He or she is responsible for certain decisions, but many other decisions (such as the look, name and products/services) are already determined by the franchisor and must be kept the same by the franchisee. The franchisee will pay the franchisor under the terms of the agreement, usually either a flat fee or a percentage of the revenues or profits, from the sales transacted from that location.

Compensation, consideration, or fee paid for a license or privilege to use an intellectual property (brand, copyright, patent, process) or a natural resource (fishing, hunting, mining), computed usually as a percentage of revenue or profit realized from the use.

Franchisors will grant various types of territory delineated by a radius, # of households, counties, zips, states etc. There are 3 principle types:

• Master License – A big area requiring significant capital, and you have sub-licenses (franchisees) in your area. You share the proceeds with the franchisor
• Regional Development – You have a defined area, must open a defined # of units within a defined time frame. The franchisor will not put someone else into that area if you are fulfilling the criteria set out
• Unit – One location in one area

the continuum here is time or money. What do you want to put more of into a business?

• Absentee Ownership – More money than time. Hire a General Manager, an assistant manager and employees. Show up every now and then
• Semi-Absentee Ownership – You are the General Manager and have an Assistant Manager as your eyes and ears
• Executive Ownership – You do everything. Chief cook and bottle washer.

I believe most people want a business that can be absentee because then you can step away, treat it like an annuity or sell it. The value is the cash flow that continues to happen when you aren’t around.