A franchise is an agreement between a company and a company or person/s in which rights to exploit a product, activity or trade name are granted.

Usually a franchise is granted for a specific territory as well as for a determined time. They usually last from 5 to 30 years, but like any agreement or contract it can be terminated early according to the clauses contemplated in it or in the regulatory regulations themselves.

Subjects

In a franchise two types of subjects can occur:

• Franchisor: It is the company that owns the brand, activity or product that transfers the exploitation of it in exchange for profitability.

• Franchisee: It is the company or person/s who acquire the exploitation rights of the brand, activity or product.

Characteristics

The essential elements included in a franchise are:

• License of the brand, as well as the rest of distinctive elements (advertising, slogan…),

• Transmission of Know How (procedures, training…),

• The provision of products that the franchise will commercialize (if applicable),

• Economic considerations for the assignment of exploitation rights. It usually consists of an initial payment and a percentage for sales, as well as payment for products provided to the franchisee,

• Support from the franchisor to the franchisee for the correct implementation and continuation of the franchise (quality controls, financial, creation and improvement of products…),

• Obligation to follow the operation of the brand once implemented in the business (prices, quality…).

Types

Practically any business can be susceptible to becoming a franchise, but I’ll mention the most common activities:

• Commerce franchises.

• Restaurant franchises.

• Service franchises.

• Industrial franchises.

Advantages and disadvantages

A franchise can have many advantages such as obtaining an assured profitability, since the clientele, prestige… has already been achieved by the franchisor.

The risks assumed are less than if the business were started from 0… but it also has some disadvantages such as that the brand will never become your own and that periodic payments must be made for its use (as well as the initial payment).

We hope this information is very useful to you.