Franchisor or Franchisee – Understanding the Difference

There are two sides to every story, and each side views events through their own filter, or perspective. It’s a similar situation with franchising. There are two sides to the franchise concept, one from the perspective of the franchisor and the other from the perspective of the franchisee. The franchisor typically has an excellent business idea which becomes successful enough for the franchisor to consider duplicating the entire concept and selling it to others for a profit. The franchisee wants to buy a business, but would rather get into something already established than start up from scratch.

Both business models suit the particular party at the time. Franchising has been spectacularly successful over the past thirty years or so, and has spawned hundreds of businesses that are now household names. Where once this type of duplication was the province of multi-national companies that established branches in every city, franchises, while spread in a similar fashion, are individual businesses with different owners.

Take as an example a simple service business like a mowing and gardening. An enterprising person starts their own mowing service, builds it up through good, reliable service and the ability to on-sell extras like replanting seasonal flower beds etc. Eventually they have more clients than they can service, and are still getting new referrals. After consulting with their accountant Brisbane, they package the whole concept including their business plan, marketing methods, branding etc. and sell it as a start-up business with a small book of established clients. They are now a franchisor.

The person who buys the franchise always wanted a small business, but didn’t know how to get started. While very good at mowing and gardening, they had no idea how to market, advertise, set up business systems, invoice clients etc. By buying a franchise, everything is set up including some clients to get a kick start. All they need do now is build on that base. They are now a franchisee.

Either of these scenarios is a perfectly legal, legitimate and mostly profitable business model, especially suited to personal services or small retail outlets. There is now a national association supporting franchising from both perspectives and the concept has grown into a multi-billion dollar business and industry sector. However, like any business venture, the key to deciding which side of the fence in franchising to straddle lies in getting expert business advice.

In any industry of this size, there will always be business failures, whether through economic circumstances, poor planning, lack of start-up capital, bad management or other causes. Franchising is not immune to these factors, but getting sound advice from a business accountant who specialises in franchising will get the business started on a sound footing, or alternatively, caution the client against it for sound business reasons.

The popularity of buying a franchise for the small business owner has been the ease of entry into a business, and the on-going support provided by the franchisor. For the franchisor, the lure is often

seeing a great business idea take off, and the freedom to have a continual income stream without being involved in the day to day grind of managing a business. When both come together successfully the rewards are great for everyone, but there should always be that consultation with a professional business advisor to smooth out the bumps in the ride.

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