A basic answer is this: a franchise is a LICENSE to use the branding, trademarks, and business format of a specific company.
Each franchise provides a Franchise Disclosure Document or FDD to any prospective buyer. The FDD contains highly valuable information on what the franchise is about including costs, fees, and other relevant information.
There is a one-time payment for the license called the FRANCHISE FEE.
When a franchise is awarded by the franchisor, a geographic area or TERRITORY is typically included.
Franchises also provide initial TRAINING about their business. In addition, they give ONGOING SUPPORT to their franchisees the entire time.
What’s unique about franchises compared to other types of businesses is the financial relationship between the franchisor and the franchisee. The payment from franchisee to franchisor is called the ROYALTY.
Today’s takeaway: franchises are different than other businesses.