What Is Franchising and How Does It Work?

Franchising is a business model that allows a company (the franchisor) to expand by licensing its brand, systems, and operating methods to independent business owners (franchisees) who open and run their own locations.

How Franchising Works

In a typical franchise relationship, the franchisor grants the franchisee the right to use its trademark, business model, and operating procedures for an agreed period, usually within a defined territory. In exchange, the franchisee typically pays an initial franchise fee and ongoing royalties, and agrees to operate the business according to the franchisor's standards.

Key Parties in a Franchise Relationship

• Franchisor — the company that owns the brand, business model, and operating system, and grants others the right to use them. • Franchisee — the independent business owner who invests in and operates a location under the franchisor's brand and system. • Franchise Agreement — the legal contract that defines the rights, obligations, fees, and duration of the relationship between the two parties.

What Franchising Is Not

Why Businesses Choose to Franchise

Franchising can allow a business to grow across multiple locations without funding every location directly. It relies on franchisees investing their own capital and effort, while the franchisor focuses on developing the brand, systems, and support structure that keep every location consistent.