This term has often been used to describe many different forms of business relationship including licencing, distributor agreements and agency arrangements.
Essentially it is the granting of a licence by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade as their own business under the brand of the franchisor. The franchisor will receive an initial fee from the franchisee to buy the right to trade and who will also pay an on going management service fee, usually based on a percentage of annual turnover or mark ups on supplies. In return the franchisor has an obligation to support the franchisee network, usually with training, marketing and promotional activities and other management services.
It is vital to take up references from other or past franchisees as to how the ‘relationship’ worked and whether there was the support promised. There needs to be; (1) provision for auditing of the payers accounts in order that reliable calculation of ongoing licence fees are made; (2) clarity as to the length of contract/ the term; (3) a list of the circumstances in which the franchise can be terminated by either party.
Having someone at your side when wading thorough and amending the often lengthy Franchise Agreement obligations is vital to avoid tears later when you are signed up and compelled to adhere to what you agreed to.