Q: I want to expand my business either by franchising or licensing. Can anyone advise me on the differences?
Nov 17 2009
Answered by: Clive Lewis Ask a question
Business format franchising
With business format franchising, you put together a complete business package. You then licence this format to franchisees. They run their own businesses, but use your methods and trading name.
• You provide an operations manual, saying how to set up and manage a new outlet.
• You agree a contract with your franchisee setting out what rights and obligations you each have. For example, you might provide marketing support.
• The franchisee pays you for the right to use your business concept. For more information, see the page in this guide on franchise fees and royalties.
• You train and support the franchisee through their start-up period.
Other franchising arrangements
There are other business arrangements which are sometimes also referred to as franchising, including:
• selling a licence allowing someone else to manufacture and sell your product, but without telling them how to run their business
• using an agent, who sells your product on your behalf
• setting up a distribution agreement, whereby you sell your products to another business that then sells them to their own customers
From the above it should be apparent that setting up the first franchise is a costly and time-consuming process. But subsequently franchises should allow you to capitalize on the experience of the first.
There is a good basic guide on the Business Link website.
You might like to talk to you local Business Link about the alternatives and the advantages and disadvantages of each.
You might also like to talk to the British Franchise Association. Talking to people who have experience of the processes involved in franchising over a wide variety of sectors will, in the long run, save you time and money.
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