What Exactly is a Franchise?

It’s a good place to begin, and we do not assume that everyone knows what a franchise actually is. If you’ve been advised to buy into a franchise and your friends or business colleagues are telling you how lucrative or terrible they are, you simply need to know what they are.

It works like this. A franchise as far as the dictionary is concerned means a right or a privilege. This isn’t far from the context in which we are referring to the term really, because if I were to give a capsule definition of a franchise in business terms, I would tell you that it is buying the right (or privilege if you prefer) to sell an already established brand or trademark. Basically you use another person’s business model to make your own money, and this is why you pay them for the privilege. This is the easiest and often the best way to open a successful business of your own when you decide to start out in the world of self employment.

You find a brand such as McDonalds for example, and then you buy into their company in order to set up your own branch of McDonalds. This can be a very lucrative business opportunity, but sadly it can also be very risky and requires an awful lot of money to begin with.

Depending on the franchise in question, this money can be very well spent in many cases. As I just mentioned McDonald’s we’ll use them as an example. This business has a proven track record of success and continues to make handsome profits year in and year out. There is basically a pretty low chance of this company going bust or not making a profit. They will always be popular and they will always appeal to every demographic imaginable. But these types of franchises will cost you a lot of money more than likely.

What do you get for your money?

Well most importantly you get the branding of the company, which is probably the most fundamental things to have access to. Let’s face it, anyone can open a restaurant selling burgers and fast food, but not everyone can use the name McDonald’s. There are certain restrictions to this of course. For example, you forfeit the right to alter the prices of your products. But then, to be fair, their profits are always high, and I know which place I’d go to for my breakfast if I had a choice between them and a stinky burger van selling cheap MRM beef!