Franchisees

A franchisee is an individual or legal entity that buys the right to operate a business using the franchisor's brand, system, and support. Under a franchise agreement, the franchisee is authorized to run a unit or multiple units within a defined territory for a specified term, following the franchisor's operating model.

Franchise agreements typically require an upfront franchise fee and ongoing payments such as royalties and contributions to a marketing fund. In return, the franchisee gains access to the brand, a tested business model, training, supply networks, and ongoing support in areas like marketing, operations, and sometimes site selection. Franchisees must comply with brand standards, sourcing from approved suppliers, use of specified equipment, and reporting requirements.

Financial and legal considerations include startup costs (fit-out, equipment), working capital, and obligations related to term length, renewal options, transfer rights, and non-compete restrictions. In many countries, franchisees receive disclosures outlining fees, performance expectations, and risk factors; in the United States, this is commonly governed by a Franchise Disclosure Document.

Benefits of franchising for the franchisee include immediate brand recognition, a proven operating system, training, and access to franchisor support. Risks include ongoing royalty payments, limited managerial flexibility, dependence on the franchisor and surrounding market conditions, and potential reputational risk if the brand encounters issues.

Franchisees can operate single-unit outlets or own multiple units and may be part of multi-unit or area development agreements. They generally own the local business entity and are responsible for day-to-day operations, staffing, and local compliance within the bounds of the franchise agreement.