What is a franchisor?
A franchisor is a person or company that grants a license to a third-party, giving them the right to open a new location and sell products or services using their brand, intellectual property or expertise. The franchisor is the original business that sells the right to use its idea and name.
Related: Investing in Franchises: Choosing the Right Franchise (And Is it Right For You?)
What does a franchisor do?
The franchisor selects qualified individuals who understand the franchise’s concept and agree to follow the system that the franchisor created to maintain their standards. The franchisor ensures that those standards are met across all locations and steps in if any of the locations are deviating from expectations.
The franchisor is also responsible for making changes to the product or service based on industry trends and customer demand. They look for ways to improve the systems currently in place and provide the franchisee with the materials and processes for training employees and for developing advertising and merchandising standards.
Related: What Is a Franchise Tax? An Introduction
How do you become a franchisor?
Here are the basic steps you can take to become a franchisor:
1. Determine if franchising is feasible
Consider whether your concept has appeal for both consumers and franchisees and if your business can be systematized and replicated. If it requires your personal touch as a business owner to make it work, franchising might not be the best option.
2. Get organized
Think through the process of how your business works, from marketing to staff training. Develop an operations manual with all of your best practices and policies. Create an approval process for signing off on major decisions.
3. Find a franchise lawyer
A lawyermight be able to walk you through filling out the Franchise Disclosure Document. During this process, you set pricing, create your franchise agreement and take steps to protect your intellectual property.
4. Be selective choosing franchisees
You may consider carefully evaluating people who apply to franchise your business. While it can be easy to find people who have the resources to launch the business, they may need the right background to fully understand your concept. This person will be representing you and your brand, so it’s important to be selective during the interviewing process and carefully evaluate each candidate.
5. Establish and enforce brand guidelines
When you are a franchisor, your company brand is one of your most important assets. One of the greatest risks of franchising can be giving new people the ability to represent your brand. You can monitor a new franchise by paying attention to their social media posts to ensure they’re representing the brand accurately.
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Frequently asked questions about being a franchisor
What is the difference between a franchisee and a franchisor?
The franchisor is the original company or business owner who created and administered the business model. They’re the mentor in the relationship. The franchisee is the person who purchased the franchise and is responsible for the new location’s day-to-day operations. The franchisee runs the business under the franchisor’s brand.
How does the franchisor make a profit?
Franchisors make money by charging fees, including the following:
- Franchise fees:The franchisees typically pay a flat fee upfront when they sign the franchise agreement. With this fee, they often get the rights to the brand, the ability to sell your product and services and other support you may offer with training and operations. The franchisee may also pay an annual franchise fee.
- Royalty fees: As a franchisor, you typically get a percentage of each franchise’s gross sales on a monthly basis.
- Add-on fees:Some franchisors charge add-on fees, which require franchisees to buy certain equipment, ingredients or promotional items from you. You could either have those items manufactured and sell them to the franchisee or arrange for the manufacturer to sell them directly to franchisees and give you a portion of the profits.
What’s the benefit of turning your business into a franchise?
Franchising allows businesses to branch out and grow rapidly while giving others the opportunity to run their own business that has a proven formula for success.
