How Does a Franchise Work?

So, you’re thinking about diving into the world of franchising. Maybe you’ve noticed a favourite fast-food joint pop up in multiple locations or seen a local business expand across cities, and you’re curious how it all works. 

Or perhaps you’re a budding entrepreneur, looking for a way to get into business with a little more structure and support. Either way, franchising can be a great path for those who want to own a business with an established brand behind it.

In this guide, we'll break down how a franchise works, what it means to be a franchisee, and what you should know before getting involved in the franchise game.

What is a Franchise?

At its core, a franchise is a business model that allows individuals (franchisees) to run a business under the name and brand of an already established company (the franchisor). 

The franchisee purchases the right to operate the business using the franchisor’s systems, processes, and branding. In return, the franchisee pays fees, often including an initial franchise fee and ongoing royalties.

Think of it like this: instead of starting your own business from scratch, you buy into an already successful recipe. You get to use the brand name, the secret sauce, and the support system that’s already been proven to work for countless others.

The Franchisee and Franchisor Explained

To understand how a franchise works, it’s important to know the key players: the franchisee and the franchisor.

The Franchisee

The franchisee is the individual or group that buys the right to operate a franchise. They’re responsible for running the day-to-day operations of the business, but they do so under the rules set by the franchisor. While the franchisee owns their location(s), they don’t have full creative freedom like an independent business owner might.

Instead, they follow the established systems and guidelines of the brand, from how the products are made to how they market their services. But don’t worry, this isn’t necessarily a downside. Franchisees are investing in a proven business model, so a lot of the guesswork of starting a business is already taken care of.

The Franchisor

The franchisor, on the other hand, is the company that created the original business and owns the brand. They grant franchisees the license to use their brand and operating methods. In return, the franchisor receives financial compensation - usually a combination of an upfront franchise fee and ongoing royalties based on sales.

A franchisor doesn’t just hand over the keys and disappear. They typically provide ongoing support to their franchisees, such as marketing assistance, training programs, and operational guidance. This is one of the biggest benefits of franchising - the support structure is built in.

How Does a Franchise Work?

So, how does this all come together? Here’s a simplified look at the typical steps in the franchise process:

The first step for any potential franchisee is to research franchise opportunities. Not all franchises are created equal, and different brands come with varying levels of investment, risk, and involvement. You’ll want to find one that aligns with your goals, budget, and interests.

Once you’ve settled on a franchise, you apply to become a franchisee. This often includes an in-depth review process where the franchisor assesses your financial situation, business experience, and overall fit for the brand.

If you’re approved, the next step is signing the franchise agreement, which outlines the terms of your relationship with the franchisor. This includes details about fees, royalties, branding rules, and support you’ll receive.

After the agreement is signed, it’s time to set up your franchise. This could involve finding a location, purchasing equipment, hiring staff, and attending training programs. The franchisor typically provides a lot of guidance during this stage to ensure that your setup follows their proven methods.

Once your franchise is set up, you’re ready to open! From here, you’ll be responsible for running the business - including managing employees, handling finances, and interacting with customers. The franchisor will continue to offer support, especially in marketing and operations, to help ensure your success.

Key Elements of a Franchise

There are a few key elements that make up a franchise. Understanding these will help you get a clearer picture of how a franchise operates:

• Franchise Fee: This is the upfront cost that the franchisee pays to the franchisor to buy into the business. Franchise fees can range widely depending on the brand and industry, from a few thousand dollars to over a million.
• Royalties: In addition to the initial fee, most franchisees also pay ongoing royalties to the franchisor. These are typically a percentage of the franchise’s revenue and are paid regularly (often monthly or quarterly).
• Branding: One of the biggest benefits of a franchise is that you’re buying into an established brand. This includes the company’s name, logo, marketing materials, and, in some cases, a customer base that already knows and trusts the brand.
• Training and Support: Franchisors often provide extensive training to help franchisees succeed. This can include initial training on how to run the business, as well as ongoing support in marketing, operations, and technology.

The Benefits and Challenges of Owning a Franchise

The Benefits

Franchising can be a fantastic option for those looking to start a business, but who don’t want to take on the risks of building a brand from scratch. Some of the key benefits include:

• Proven Business Model: One of the biggest advantages of franchising is that you’re buying into a business that has already been successful. This reduces much of the risk that comes with starting a new venture.
• Support and Guidance: With a franchise, you’re not alone. The franchisor is there to offer help, training, and resources to ensure your success.
• Brand Recognition: Starting with a known brand can give you a leg up, as customers are more likely to trust and try a business they’ve heard of before.

Challenges of a Franchise

Of course, franchising isn’t without its challenges. It’s important to be aware of potential downsides, such as:

• Limited Control: As a franchisee, you must follow the franchisor’s rules and guidelines. This means less flexibility and creativity in how you run the business.
• Ongoing Fees: While the upfront franchise fee can be steep, it’s important to remember that royalties are an ongoing expense.
• Dependence on the Franchisor’s Reputation: Your franchise’s success is tied to the overall brand. If the franchisor faces negative publicity or makes bad business decisions, it can impact your individual franchise.

For more detailed information on the pros and cons of franchising, check out our blog A Complete Look at the Pros and Cons of Franchising.

Franchise vs. Startup: Which is Right for You?

When deciding whether to invest in a franchise or start your own business from scratch, it’s essential to weigh the pros and cons of each. Both options offer exciting opportunities for entrepreneurs, but they come with different levels of risk, control, and support.

Franchises: Less Risk, More Structure

One of the biggest benefits of choosing a franchise is that you’re buying into an established business model. The brand, operational processes, and customer base are already in place, which significantly reduces the risks that come with starting a business from scratch. You have a playbook to follow, and you can count on the franchisor for guidance and support.

But, of course, there’s a trade-off: less creative freedom. With a franchise, you’re expected to adhere to specific guidelines and procedures set by the franchisor.

Another point to consider is cost. While you might think starting a business from scratch would be cheaper, many franchises require a large initial investment and ongoing fees. That said, because you’re starting with a recognized brand, you may see a return on that investment faster than with a startup. 

There are also more affordable franchise options, which you can learn about in our blog - What are the Best Franchises to Own Under 50k?

Startups: More Freedom, Higher Risk

Starting a business from the ground up gives you complete creative control. You can design your concept, develop a unique brand, and build a business that reflects your personal vision. If you’ve got an innovative idea or a specific way you want to operate, a startup allows you to bring that dream to life.

However, with that freedom comes a higher level of risk. You’ll need to build everything from scratch - branding, marketing, operations, and a customer base. This takes time, and effort, and often involves a lot of trial and error. Without an established blueprint or support system, the risk of failure is higher, but the potential reward can also be greater if your startup thrives.

Ultimately, the decision between a franchise vs. a startup comes down to your personal goals, risk tolerance, and how much support or creative control you desire.

Why Sculpture Hospitality Could Be Your Perfect Franchise Partner 

Looking for a franchise opportunity that combines your passion for the hospitality industry with a proven, scalable business model? Sculpture Hospitality might be the perfect fit for you. 

As a global leader in bar and restaurant inventory management technology and consulting, Sculpture Hospitality has helped businesses around the world streamline their operations, reduce waste, and improve profitability.

With decades of experience and a reputation for delivering tangible results, Sculpture Hospitality offers franchise opportunities to individuals who want to tap into a lucrative market while receiving the support needed to succeed. Whether you’re a hospitality veteran or new to the industry, Sculpture’s comprehensive training and cutting-edge technology ensure you have everything you need to thrive.

Why Choose Sculpture Hospitality?

• Proven Business Model: Sculpture Hospitality has honed its business model over decades, creating a turnkey system for franchisees to follow. You’ll be joining a network with a strong track record of success.
• Low Startup Costs: Compared to other franchises in the hospitality space, Sculpture offers affordable investment options and low overhead. This makes it easier to get started without breaking the bank.
• Comprehensive Support: You’re never on your own with Sculpture. Franchisees receive extensive training, ongoing support, and access to the latest inventory management technologies, so you can provide top-notch service to your clients.
• Cutting-Edge Technology: Sculpture’s state-of-the-art software helps hospitality businesses track and control their inventory, and our franchises are essential partners in their quest for efficiency and profitability.
• Multiple Investment Options: With various levels of investment available, you can find a franchise option that suits your financial situation and entrepreneurial goals.

Ready for the Next Step?

If you're eager to explore a new business venture in the ever-growing hospitality industry, partnering with Sculpture Hospitality could be the perfect move. With the right balance of support, innovation, and opportunity, Sculpture Hospitality is committed to helping franchisees build successful, thriving businesses.

Interested in learning more? Contact our team today to discover how you can become part of the Sculpture Hospitality franchise family!