What is Franchising?

If you are thinking about buying into a franchise system, it is important that you understand exactly how franchising works, what fees are involved, and what is expected of you from the franchise company.

An individual who purchases and runs a franchise is called a “franchisee.” The franchisee purchases a franchise from the “franchisor.” The franchisee must follow certain rules and guidelines already established by the franchisor, and the franchisee must pay an on-going monthly management charge as well as an upfront, one-time franchise fee to the franchisor.

The History of Franchising

Franchising began back in the 1850’s when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographical area, and also provide training to customers, Singer began selling licenses to entrepreneurs in different parts of the country. In 1955 Ray Kroc took over a small chain of food franchises and built it into today’s most successful fast food franchise in the world, now known as McDonald’s.

Today, franchising is helping thousands of individuals be their own boss and own and operate their own business. There is usually a much higher likelihood of success when an individual opens a franchise as opposed to a Mum and Dad business, since a proven business formula is in place. The products, services, and business operations have already been established.

Franchise industry statistics:

  • Industry annual turnover: £12.4 billion
  • Number of franchisor brands operating in the UK: 897
  • Number of franchisee outlets: 36,900
  • Number of people employed in franchising: 521,000
  • Percentage of units profitable (including new businesses): 90%
  • This has grown from an industry that 20 years ago had a turnover of just over £5 billion
  • 379 different brands and represented 18,300 franchised outlets.