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What is a Business Format Franchise?

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The UK franchising industry comprises many different types of franchising. One of these types is business format franchising. This approach involves a business owner (the franchisor) allowing another party (the franchisee) to replicate their business model. The franchisor will provide franchisees with a package of training and support. This article will further explore the concept of business format franchising.

What Are the Types of Franchising? 

Franchising involves a franchisor giving another party rights to operate a business that uses the franchised brand’s trade marks, operating systems, and business model in exchange for an initial investment and ongoing fees

Franchise agreements underpin all franchisor-franchisee relationships, but not all franchise agreements are the same considering the different types of franchising. Types of franchising include:

  • business format franchising;
  • product distribution franchising; 
  • manufacturing franchising; and
  • management franchising. 

Each approach carries different duties and obligations for franchisees and franchisors. The business format approach is one of the most comprehensive. Business format franchising means franchisees typically receive a complete package, including: 

  • a proven business model; and 
  • rights to use the franchisor’s intellectual property. 

What is Business Format Franchising?

Business format franchising is the approach people often think of when they imagine franchising. Under this approach, the franchisor provides the franchisee with a business in a package. The franchisor assists the franchisee in setting up their unit and trains them to run a business, replicating the franchisor’s business model. 

The franchisee’s initial investment covers the cost of setting up their unit and purchasing the rights to use the franchisor’s trademarks. The franchisor will then provide initial training to prepare franchisees to:

  • run their units; 
  • familiarise them with the brand; and 
  • instil industry knowledge. 

Franchisees pay ongoing royalties and fees to the franchisor for the duration of the agreement. Popular UK-based business format franchises include convenience stores such as One-Stop. These stores have the same aesthetic, branding, processes, and products.

Business format franchisors support franchisees while they operate their businesses and assist with aspects such as marketing. 

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What Are the Advantages of Business Format Franchises?

Franchisor ControlIt can be easier for franchisors to retain control of their brand and its reputation under business format franchising than with other franchising methods such as manufacturing or product distribution. However, this can also depend on how carefully you draft the franchise agreement. Seeking legal advice about the franchise agreement can help you protect your brand’s reputation. 
Brand GrowthAs a franchisor, you are responsible for assisting your franchisees in setting up their business, but they are accountable for managing their teams and day-to-day operations. If the franchises are functioning effectively, this will positively impact your brand’s overall health and can attract further opportunities for growth. 

What Are the Disadvantages of Business Format Franchises?

Franchisor InvestmentFranchisors often invest substantial time and money into translating their existing business into a replicable model that franchisees can copy. For example, you will need to:
+ create a training program complete with learning materials;
+ conduct market research;
+ provide franchisees with your knowledge by writing a franchise operations manual;
+ help franchisees set up their units; and
+ provide ongoing support.
The amount you will need to invest to turn your business into a franchise depends on its industry, size, and plan. 
Reputational DamageThere is a risk to your brand’s reputation with any form of franchising. However, while the business format model can help you retain control of your brand, this requires robustly worded franchise agreements. The franchisees’ businesses will be the face of your brand. Therefore, any wrongdoing on their part can negatively impact your brand’s reputation, and the overall network can suffer. 
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Key Takeaways

In business format franchising, franchisors provide franchisees with a comprehensive package that includes rights to their intellectual property, a proven business model, and extensive training on how to operate their units. This approach offers franchisees a turn-key solution to starting and running their own business while benefiting from the franchisor’s established brand and expertise. This method can be effective for brand growth and will suit businesses with easily replicable business models. Nevertheless, the business format often requires franchisors to invest significant amounts to begin franchising.

If you need help franchising your business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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