Many businesses are rapidly growing, thanks to unprecedented technological advancement and remarkable innovations in every field. Consequently, franchises are flourishing, with budding businesspersons and seasoned entrepreneurs engaging in this innovative business strategy. It is estimated that 10.5% of all businesses in the country are franchises. So, what is a franchise, what are its different types, how are they beneficial, and what are some popular franchises? Read on to find out the answers to these questions.

What is a business franchise?
A business franchise is a type of licensing agreement where a franchisor (business owner) grants a franchisee (an individual or a group of businessmen) permission to the franchisor’s business processes, objectives, brand trademark, and trade name in return for an initial start-up fee and annual licensing fees. Thus, the franchisee acquires a license granting them the right to sell the franchisor’s products or services under the franchisor’s business name. In this way, a franchise becomes a joint venture between two parties, where one of them is seeking to expand its business and strengthen its brand identity, while the other is looking to establish a firm foothold in the business sector.

Types of business franchises
There are several types of business franchises, some of which are discussed below:

Operator franchise
Operator franchise, also called job franchise, is the most budget-friendly franchising strategy with minimal expenditure on property and other resources. Business operations are typically home-based and driven by the franchisee, who may delegate work to different professionals as the business grows. This model provides tremendous scope for franchisees to grow in their careers and gain considerable business experience. Real estate, shipping, corporate event planning, plumbing, children’s services, and travel agencies are some sectors with several operator franchises.

Product-driven franchise
It involves the distribution of the franchisor’s products by the franchisee. Here, franchisors typically grant the franchisees permission to use their trademarks and take over the distribution process but do not provide them with access to the nitty-gritty of business operations. Product distribution plays an integral role in such business associations. Industries selling electrical appliances, automobiles, computers, etc., commonly establish product-driven franchises.

Business format franchise
Here, the franchisor provides the franchisee with considerable detail on almost all aspects of the business, including business processes, sales, and objectives. The franchisee also obtains extensive training and support and takes over various business functions, including marketing, finance, inventory, and sales. Hospitality, retail, fitness, and fast food are some sectors where this model is predominant.

Investment franchise
Investment franchises are large-scale business ventures requiring considerable capital investment. The franchisee is responsible for end-to-end business management and often employs a management team to carry out various business functions. In addition, the franchisee invests a significant amount in the franchisor’s business, intending to derive good returns on investment and capital gains on exit.

What are the benefits of franchising?
The following are five benefits of this business strategy:

Committed business support
One of the most significant advantages is that the franchisor receives constant support and assistance from the franchisee in all or specific business aspects. Such help often relieves business owners of the burden of end-to-end business management while ensuring they reap the benefits of profits.

Lucrative business opportunity for franchisees
Opening a business involves considerable effort in all spheres, from manufacturing and distribution to marketing and sales. However, collaborating with an established company implies furthering a brand already recognized by the niche audiences. Thus, it is easier to earn profits and recognition through franchising than starting independently.

Controlled risk
Starting a business is an initially risky, albeit eventually rewarding, decision, particularly when entrepreneurs start with little or no guidance. In contrast, a collaborative effort between two parties can reduce such risk, as more businesspersons become involved in making significant business decisions. Moreover, in certain types of franchises, franchisees may also invest in the venture and set up management teams as the business grows, further reducing or eliminating business risks.

Better prospects for growth and innovation
Another significant benefit is that most mundane business operations are governed by franchisees, providing franchisors with considerable bandwidth to innovate in their fields and develop dynamic business strategies.

Today, franchises are prevalent in almost every sector. These include the world’s biggest fast-food chains like KFC, McDonald’s, and Subway; real-estate giants like Century 21, Keller Williams, and RE/MAX; and retail franchises such as 7-Eleven, Dairy Queen, and The UPS Store. Several entrepreneurs and small-scale as well as established businesses have developed their brand identities and earned huge profits as a result of this tried-and-tested business strategy.