What Is a Franchise?

A franchise is a business model where an individual or company (the franchisee) operates a location using another company’s brand, systems, and ongoing support (the franchisor). Instead of starting a business from scratch, the franchisee buys the right to use a proven concept and benefits from an established playbook, trademarks, training programs, marketing systems, and ongoing operational guidance.

At its core, franchising is a partnership: the franchisor provides the brand and operating framework, while the franchisee invests the capital, runs the day-to-day operations, and pays ongoing fees to the franchisor.

How Franchising Works

Franchising relies on a contractual relationship defined by two key documents:

1. The Franchise Disclosure Document (FDD)

A legal document required in the U.S. It outlines fees, financial performance representations (if provided), franchisee obligations, litigation history, territories, and the franchisor’s responsibilities.

2. The Franchise Agreement

The contract you sign. It grants you the right to open and operate the business under the franchisor’s brand and sets the rules and obligations for both parties for the duration of the term.

Once signed, the franchisee receives the brand name, operating systems, and training. In return, they follow the franchisor’s standards and pay ongoing royalties and marketing contributions.

What You Get When You Buy a Franchise

Buying a franchise gives access to a full business system. While every brand differs, most provide:

• Brand name and trademarks
• Training programs for owners and staff
• Standard operating procedures (SOPs)
• Site selection assistance and sometimes real estate support
• Marketing and advertising systems
• Technology platforms (POS systems, scheduling software, CRM, etc.)
• Ongoing support through field consultants, operations teams, and performance reviews

This support is why many gravitate toward franchising: it reduces uncertainty and accelerates the learning curve compared to creating a business independently.

Common Fees in a Franchise

A franchise requires initial and ongoing financial commitments. The most common fees include:

Initial Franchise Fee

A one-time payment to join the system and access the brand.

Initial Investment (Item 7)

The full cost to open the business, including build-out, equipment, inventory, training, insurance, and working capital.

Royalties

Typically a percentage of gross sales paid weekly or monthly.

Marketing Fund Contribution

A national or regional advertising fee supporting brand-wide promotions.

These fees fund the support and brand development that franchisees rely on.

The Role of the Franchisor vs. the Franchisee

The Franchisor Provides:

• Brand standards
• Training and onboarding
• Marketing frameworks
• Operational tools and systems
• Product development
• Field support and compliance guidance

The Franchisee Handles:

• Daily operations
• Hiring and managing staff
• Local marketing efforts
• Customer service
• Maintaining quality standards
• Financial management of the location

This division of responsibilities creates a predictable structure that can scale across dozens or hundreds of locations.

Why Many Choose Franchising

Franchising appeals to individuals who want business ownership with added support. The most common benefits include:

• A proven concept instead of untested ideas
• Faster launch timelines
• Strong brand recognition
• Easier access to financing (lenders value established brands)
• Clear systems for hiring, training, and operations
• A network of peers running similar businesses
• Ongoing innovation from the franchisor

Because of these advantages, franchising is used across nearly every U.S. industry: food and beverage, fitness, childcare, pet services, automotive, home services, education, beauty, healthcare, and more.

Key Risks to Understand

While franchising offers structure and support, it is not risk-free. You should consider:

• Limited flexibility: You must follow the franchisor’s playbook.
• Ongoing fees: Royalties and marketing contributions reduce margins.
• Performance varies by location: Success depends on execution, market demand, and local competition.
• Long-term contracts: Most agreements last 5–20 years, with renewal terms defined by the agreement.
• Franchisor quality matters: Weak training or inconsistent brand management can harm franchisees.

Careful due diligence—especially reviewing the FDD and speaking with current franchisees—is essential.

The Bottom Line

A franchise offers a structured path to business ownership supported by a recognized brand and established systems. It reduces many of the uncertainties of starting a business independently, but it also requires strict compliance with the franchisor’s standards and ongoing financial commitments.

Understanding the fundamentals—how the model works, what you receive, and what obligations you take on—helps you evaluate opportunities more clearly and choose the right brand for your goals.