Franchise Business: Definition, Benefits, Challenges, and How to Franchise Your Business

Step-by-step guide to franchising, including support, fees, types, and Bajaj Finserv financing options.
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5 minutes
04 October 2025

Franchising is a popular business model that helps brands grow fast while allowing entrepreneurs to run their own business using proven systems. In this setup, the franchisor gives permission to franchisees to use its brand, methods, and support. This benefits both sides: franchisors grow quickly, and franchisees get a well-known brand, training, and lower risks when starting.

This guide explains how franchising works, its benefits and challenges, and how it differs from licensing. It also covers different types of franchises, important parts of a franchise, and the steps for both franchisors and franchisees. Finally, it looks at financing options like Bajaj Finserv business loans to help with franchise growth.

What is a business franchise?

Franchising is a business model where an established company (called the franchisor) allows an independent business owner (the franchisee) to use its successful business style, brand name, and way of working. The franchisee pays a one-time fee and regular royalties to the franchisor

This model helps the franchisor grow quickly with less risk, while giving entrepreneurs a proven business plan and support. The relationship is set by a legal franchise agreement, which explains the rights and duties of both sides.

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How Franchising Works

  1. The Agreement: A formal franchise agreement is made between the franchisor and the franchisee, which explains the rules and terms of their partnership.
  2. The Fees: The franchisee pays an initial fee to the franchisor to get the rights, followed by regular royalties, usually a percentage of the total sales.
  3. The Support: The franchisor gives the franchisee access to its brand, logos, operation guides, training, marketing plans, and ongoing help.
  4. The Operations: The franchisee runs the business daily, managing staff and following the franchisor’s standards for quality and operations.
  5. Brand Expansion: The franchisor grows its market reach, while the franchisee starts a business with a proven idea and some built-in brand recognition.

Difference between Franchising and Licensing

Franchising and licensing are two ways to let others use your brand for a fee. The main difference is how much control the brand owner keeps and how much support is given.

Franchise Agreement

Licence Agreement

The person or business (franchisee) gets full rights to use your brand name, products, systems, and training to open a new branch of your business.

The person or business (licensee) gets permission to use your brand name, logo, design, or product idea—but not the full business system.

Best for service-related businesses like food outlets, salons, or coaching centres.

Best for product-based businesses like clothes, toys, or home decor.

Example: A local entrepreneur opens a new outlet of a well-known coffee shop using its name, menu, and training system.

 


Types of Franchises

  • Job Franchise

    • Business offers a service for the franchisor

    • Usually small and simple

    • Example: A local travel agency or tutoring centre

  • Distribution Franchise

    • Focuses on selling products and related services

    • Example: Car repair shop or electronics store

  • Business Format Franchise

    • Franchisee gets the complete business model, including brand, systems, and training

    • Example: A fast food restaurant or fitness centre

  • Investment Franchise

    • Large-scale, service-based business requiring more investment

    • Example: Hotel or big event management company

Advantages of franchising a business

For the franchisor:

  • Faster expansion: Franchising helps you grow your brand quickly using the franchisees’ money, which lowers your investment risk.
  • Increased income: Besides the initial fees, you earn regular income from ongoing royalties.
  • Less day-to-day work: Franchisees handle daily operations, letting you focus on strategy and growing the brand.

For the franchisee:

  • Proven business model: You get a tested and successful business system, which lowers the risk compared to starting on your own.
  • Brand recognition: You benefit from the well-known brand, loyal customers, and marketing done by the franchisor.
  • Training and support: Franchisors usually offer full training, guidance, and ongoing help.

Disadvantages of franchising a business

For the franchisor:

  • Loss of control: Even though you set the rules, you need to trust franchisees to maintain brand standards, as their actions can affect the whole brand’s reputation.
  • Legal risks: Disagreements over the franchise agreement or how the business is run can lead to expensive legal problems.

For the franchisee:

  • Limited freedom: You must follow the franchisor’s strict rules and have little room to be creative or adjust to local market needs.
  • High costs: Franchise fees and ongoing royalties can be costly, which lowers your profit margins.
  • Dependence on franchisor: Your success depends on the franchisor’s reputation and financial health. Poor decisions by them can negatively impact your business.

Components of a franchise business

  • Franchise Agreement:
    A legal contract between the franchisor and franchisee that explains the rules, rights, and responsibilities of both.
  • Franchise Fee:
    An initial payment the franchisee gives to the franchisor to start the franchise.
  • Royalties:
    Regular payments from the franchisee to the franchisor, usually a percentage of the sales or income.
  • Training and Support:
    The franchisor provides training and help to the franchisee, including starting support, marketing help, and advice on running the business.
  • Branding and Marketing:
    The franchisee uses the franchisor’s brand name, logo, and marketing materials to promote the business.
  • Operational Standards:
    The franchisee must follow the franchisor’s rules, procedures, and quality controls to keep the brand consistent.

How to franchise your business (for the franchisor)

To grow your existing business through franchising, follow these important steps:

  • Create a business plan: Prepare a detailed plan that explains your franchise model, covering branding, marketing, operations, and supply chain.
  • Develop an operations manual: Write down all your business procedures and systems in a clear operations manual. This will guide your franchisees to run the business the same way you do.
  • Prepare legal agreements: Work with a franchise lawyer to create a strong franchise agreement and Franchise Disclosure Document (FDD) to share with potential franchisees.
  • Set up a support system: Plan the training, ongoing help, and quality checks you will offer to franchisees to keep the brand consistent.
  • Define territory and fees: Decide on the franchise fee, regular royalties, and contributions to advertising funds. Specify if franchisees will have exclusive or non-exclusive rights to their area.
  • Market and sell franchises: Advertise your franchise through online listings, trade shows, and other channels. Choose franchisees who fit your brand and have the financial means to invest.

How to buy a franchise (for the franchisee)

  • If you’re an entrepreneur wanting to own a business with less risk than starting from scratch, buying a franchise could be a good option.
  • Assess your goals: Think about your interests, skills, and financial situation to choose the right industry and investment level for you.
  • Research opportunities: Look through online directories or visit franchise expos to explore different franchise options. Choose a brand with a strong reputation and market presence.
  • Investigate the franchisor: Do thorough research on the company, its owners, and financial health. The franchisor must provide a Franchise Disclosure Document (FDD), which shares their business background and legal details.
  • Talk to current franchisees: Speak to existing and former franchisees to learn about their experiences, profits, and any difficulties they faced.
  • Secure financing: Figure out the total investment needed, including fees, stock, and working capital. Arrange funding through your savings, bank loans, or franchisor financing options.
  • Review the franchise agreement: Get a franchise lawyer to carefully check the agreement, focusing on fees, operational rules, territory, and exit terms.

Challenges of franchising a business

Franchising a business can also involve challenges, such as:

  1. Legal and regulatory requirements: The government regulates franchising, and franchisors must follow laws like the franchising code of ethics.
  2. Control and brand management: Franchisors must balance maintaining consistency and quality across all franchise locations.
  3. Training and support: Franchisors should offer enough training and assistance to help franchisees run the business well and uphold brand standards.
  4. Royalties and fees: Franchisees must pay ongoing royalties and fees to the franchisor, which can affect their profitability and cash flow.
  5. Exit strategy: Franchisees must have a clear exit strategy in case they want to sell their business or terminate the agreement.

Secure a business loan for your franchising expansion

Bajaj Finance makes it simple for businesses to achieve their goals by providing quick and convenient business loans. Startups can easily get funds up to Rs. 80 lakh at competitive interest rates. Bajaj Finserv business loans offer various benefits, including:

  1. Flexible repayment options: Borrowers can choose repayment periods up to 96 months, making it convenient for them.
  2. High loan amounts: Bajaj Finance provides business loans of up to Rs. 80 lakh, enabling enterprises to secure the necessary financing for their business objectives.
  3. Quick approval and disbursement: Bajaj Finserv Business Loans ensure fast approval and disbursal, allowing businesses to access the required funds promptly.

For entrepreneurs seeking a larger credit line or better rates, applying for a secured business loan can also be an effective option, especially when leveraging existing assets. Check your pre-approved business loan offer to see if you qualify for instant credit tailored for your franchise business expansion needs.

Franchising a business can be a rewarding and profitable way to expand a successful brand and help entrepreneurs become their own boss.

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