What is a franchise?


While 43% of aspiring entrepreneurs in France would like to open a franchise , its principle is not always very well known. But then what is a franchise? And how does it work? Answers here in order to fully understand the definition and  business principle of a franchise.

What is a franchise

The franchise is a commercial and legal agreement between a first company designated as the franchisor and a second called franchisee. When signing a franchise agreement, the franchisor undertakes to provide its franchisee with the three constituent elements of the franchise: a brand (or sign, or trade name), know-how and assistance. In return, the franchisee is liable for remuneration.

Definition of franchisee

A franchisee is a legal person (company or independent entrepreneur) who signs a franchise contract in order to be able to exploit, for remuneration, the brand (or sign, or trade name), the know-how and the assistance of a franchisor . Legally, the franchisee differs from the natural person applying for the opening of the franchise. When the application is accepted, the franchisee joins a network whose image he undertakes to respect as well as the rules set out in the contract.

Definition of franchisor

A franchisor is by definition a company that signs a franchise contract with one or more franchisees , to whom it allows in particular the use of its brand (or sign, or trade name) against remuneration. The franchisor also undertakes to provide its franchisees with assistance and the know-how that has enabled them to develop their business.

Definition of franchising

The word franchising is the francization of the English word “franchising” which designates, as in French, a legal form of commercialization (marketing) and distribution through which a franchisor grants to one or more franchisees the right to manage a business selling a product or providing a service that uses the franchisor’s business system. The word franchising can also refer to the franchise contract signed between the franchisor and the franchisee, or even all the actions carried out by the franchisor to lead to the expansion of its franchise.

Definition of personal contribution

The personal contribution designates the personal funds invested by the franchisee for the creation of a business belonging to a franchise network. In principle, the franchisor requires that the personal contribution of the franchisee represents between 15% and 30% of the investment necessary for the opening of the franchised business. This is in particular to ensure the financial solidity and involvement of the franchisee.

What is the Franchise Fair?

The Franchise Fair is an event organized annually in France to allow visitors to discover the world of franchising, aspiring franchisees to learn about concepts and current opportunities, and franchisors to find candidates.

What is the principle of a franchise?

The operation of the franchise is quite simple to understand. On the one hand, the franchised company uses the brand (or sign, or trade name) of the franchisor who also has the obligation to help in terms of assistance (advice, answers to questions, etc.) and know-how. (means of production and techniques used by the franchisee, commercial methods, transmission of experience, etc.). The various elements constituting this know-how must be recorded by the franchisor in a written document which he gives to the franchisee when the contract is signed. The latter must absolutely keep the content of this document secret, sometimes including at the end of the contract if a post-contractual non-competition clause has been included in it.

Even after signing the franchise agreement, the new franchisee remains an independent business . He pays remuneration to the franchisor and invests alone in the creation of his brand, but will also generate his own income. Franchises whose sector of activity offers the highest margin are obviously the most sought after by entrepreneurs .

The purpose of a franchise on the franchisor side

The aim of the franchisor is both to obtain income and to extend its network , two objectives often going hand in hand. The franchisor asks each of its franchisees for remuneration which may take the form of an entry fee and/or royalties also called royalties. While the entry fee corresponds, as its name suggests, to the amount allowing entry into the network and the use of three constituent elements of the franchise, the royalties are periodic sums paid in a lump sum or proportional way to the turnover .

The purpose of a franchise on the franchisee side

The goal of a franchisee is to obtain the best financial ratio between the expenses he owes the franchisor and the turnover he generates. The franchisee pays himself a salary which can be fixed or depend on the annual income of his activity. According to the 16th annual franchise, a franchisee received an average salary of 38,805 euros net per year. No wonder many entrepreneurs wonder what a franchise is and how to become a franchisee .

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