Franchise FAQ - A Basic Guide

Most people have heard of the term ‘franchising’ but do not fully understand the nature of this business format. Even at franchise exhibitions, curious visitors often enquire about the concept. So here's some of the most commonly asked questions about franchising.

What Is Franchising?

A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that identification in a business.

At least 2 people are involved in a franchise system:

1. Franchisor – Party who owns the trademark and allows the right to use the trademark.
2. Franchisee – Party who pays a royalty (and an initial fee) for using the franchisor’s trademark.

Is Relevant Industry Experience And Business Know-how Required?

Most franchises do not have requirements when looking for franchisees. The reason behind this is simple; franchise training is provided. Through this training, the franchisor transfers to the franchisee critical skill sets required for the successful operation of the business.

What Are Franchise Formats/Options?

There are 3 main types of franchise formats:

Single Unit Franchise

The Franchisor grants the Franchisee the right to operate a Single Unit Franchise outlet. The Franchisee may not operate any additional outlet and/or any other location unless granted another Single Unit Franchise.

Area Franchise

The Franchisor grants the Franchisee the right to develop and operate multiple units within a specified territory. The Franchisee is typically required to open individual franchises according to a pre-determined schedule.

Master Franchise

The Franchisor grants the Franchisee the right to develop and operate multiple units within a specified territory. The Franchisee is typically required to open individual franchises according to a pre-determined schedule. The Franchisee may own or sub-franchise the units operating within the territory. The Franchisor and Franchisee share the revenue generated within the territory.

How Much Investment Can I Expect For Buying A Franchise?

Typically, there are 2 basic types of costs involved in buying a franchise.

Franchise Fee

A fee paid to the Franchisor to allow the Franchisee the right to use certain trademarks of a business, for a specified period.

Investment

The required startup capital needed to set up a franchise business. Normally includes lease requirements, setting up of the unit, equipment and inventory. Total investment requirements for different franchises can have large differences. Main reasons for the large difference include the type of industry and nature of business. Total startup costs can range from as low as $20,000 and over $1 million. Basically, the higher the proprietary value, the higher the costs.

Is Success Guaranteed When Buying A Franchise?

As with all businesses, there are many risks involved and no guarantee that your franchise business will make money. However, the franchisor will assist in providing all the support and training necessary to reduce uncertainty. If someone claims that a business is guaranteed success, it is probably too good to be true.

Do I Have Exclusivity For My Franchise?

Yes. All franchisees have exclusive rights to their own territories. No other franchises under the same brand can enter your territory.

Is There A Limit To Developing a Franchise?

Although franchisees will have their own territory to operate in, this is also their limitation. All expansion efforts must not exceed the pre-determined territory.

What Are The Legal Considerations?

All franchisors and franchisees will have to sign a Franchise Agreement stating each party’s rights, limitations, roles and responsibilities in a franchise relationship. In addition, franchise-specific regulations are either already established or increasingly being introduced by respective governments all around the world.

How To Get Started On Buying A Franchise?

Some of the ways to enquire about a franchise opportunity:

Franchise Listing Websites

An example is Top Franchise Asia's Franchise Feature.

In-house Franchise Team

Some franchises set up their own franchise team to handle franchise enquiries.

Franchise Marketing Companies

For franchises that do not have their own franchise team, a franchise marketing company is engaged to handle enquiries.