While both franchising and licensing allow others to use your intellectual property, franchising is a more comprehensive arrangement. A franchisee adopts the franchisor’s entire business model, including branding, operations, and systems, as well as ongoing support. Licensing, on the other hand, usually involves granting rights to use specific intellectual property (such as a registered trade mark or a patent) for a limited period without the deeper business relationship that can be found in franchising. Franchising is essentially an “IP licence on steroids”.

For Franchisors

• Business reputation: as a franchisor, you are responsible for maintaining the reputation of your brand. The actions of a franchisee can have a significant impact on your image, so it is essential to have strong brand guidelines and enforcement procedures in place.

• Regulatory compliance: many franchises operate in heavily regulated sectors (such as the fast-food sector). Regulatory issues affecting franchisees have the potential to cause issues for the franchise as a whole.

For Franchisees

• Financial commitment: starting a franchise requires significant upfront investment (often involving bank and other loans). It is vitally to fully understand the full financial picture before committing to a franchise.

• Contractual obligations: a franchise agreement will have specific performance requirements, which often include meeting annual sales targets. Failing to meet those targets could result in penalties or even termination by the franchisor.

• Personal risk: many franchisees are required to provide personal guarantees to the franchisor. This means that the controlling mind of a franchisee may be personally liable if the franchisor breaches the franchise agreement.

• Franchisor success: the success of your franchise is tied to the success of the wider franchise. If the wider franchise fails then it is likely that your franchise will also fail.