Understanding Franchising

The term ‘franchising’ is used to describe a range of business relationships. At its core, franchising involves the granting of a licence by one person (the “franchisor”) to another (the “franchisee”), under which the franchisee is entitled to operate their own business using the franchisor’s brand and following a proven business model.

This can create a complex relationship, requiring a careful balance between control and independence. For both franchisors and franchisees, the appeal lies in growth and stability; however, the risks are rarely symmetrical.

This article examines the advantages and disadvantages for both parties.

A franchise agreement: an overview

• The franchisee is licensed to use the franchisor’s name, trade marks, and other intellectual property, enabling the business to trade under the franchisor’s established brand.
• The franchisee is required to follow the franchisor’s prescribed business model, typically documented in an operations manual, which sets out how the business is to be established, how the brand may be presented, and how operations should be conducted on a day-to-day basis.
• To protect the consistency and reputation of the brand, the franchisor retains rights of oversight and quality control in relation to the franchisee’s operations.
• In return, the franchisee makes payments to the franchisor, usually in the form of an initial franchise fee and, in many cases, ongoing royalties or other contributions.

Of course, the precise balance of rights and obligations will vary from one franchise arrangement to another, often shaped by the sector, the scale of the network, and the degree of control the franchisor seeks to retain.

As with any business relationship, there is always a ‘risk vs reward’ analysis that needs to be undertaken.

What are the pros and cons of franchising for a franchisor?

From a franchisor’s perspective, while franchising can offer clear advantages, these are accompanied by corresponding drawbacks:

Pros:

• Business growth – franchising can enable rapid and relatively cost-effective expansion, with franchisees typically bearing much of the upfront labour and start-up costs associated with opening new outlets.
• Brand development – a growing network of franchise outlets can increase brand visibility and market presence, particularly where local marketing activity reinforces national brand recognition.
• Motivation and commitment – franchisees are usually more invested in the success of their outlet than employees, as they have capital at stake and a direct interest in the performance of the business.
• Cost efficiency – while franchisees operate and finance their own businesses, franchisors may benefit from franchise fees, ongoing royalties, and, in some cases, mark-ups on approved products or services.

Cons:

• Time and resource commitment – franchising requires significant investment at the outset, not only in designing a replicable model but also in recruiting, training, and supporting franchisees on an ongoing basis. Considerable time and care are also required to ensure that the right franchisees are selected from the outset.
• Control – while franchisors retain contractual rights of oversight, franchisees cannot be managed in the same way as employees. This inevitably limits the degree of day-to-day control a franchisor can exercise and can create tension where brand standards and operational independence collide.
• Reputational risk – the strength of a franchise network is dependent on the conduct of its franchisees. Poor performance, regulatory breaches, or misconduct by even a single franchisee can have wider reputational consequences for the brand as a whole.
• Upfront investment – establishing a franchise model often involves substantial initial costs, particularly where a pilot operation must be tested, refined, and proven before the concept is rolled out more widely.

What are the pros and cons of franchising for a franchisee?

These tensions are not one-sided. Franchisees also benefit from, and are constrained by, the structure of the franchising model.

From a franchisee’s perspective, the principal advantages and disadvantages are as follows:

Pros:

• Brand recognition – launching a business independently requires significant time and financial investment to build consumer trust and awareness. A franchisee benefits from trading under an established brand with an existing reputation and, in many cases, a ready-made customer base.
• Proven business model – franchising typically offers a structured, pre-tested business plan, reducing some of the uncertainty that comes with starting a business from scratch.
• Ongoing support – franchisees usually receive training, operational guidance, and continued support from the franchisor, providing access to expertise that might otherwise be difficult or costly to obtain.

Cons:

• Limited creative freedom – franchisees must operate in accordance with the franchisor’s systems and brand standards, which can restrict innovation and limit their ability to adapt the business to personal preferences or local market conditions.
• Lack of control – while franchisees own and operate their individual businesses, they are tied to the wider franchise network. They benefit from the brand’s reputation but remain vulnerable to reputational damage arising from the actions of other franchisees or decisions taken centrally by the franchisor.
• Cost and ongoing obligations – franchise start-up costs can be significant, and franchisees are usually required to make ongoing payments throughout the term of the franchise agreement, regardless of trading conditions.

Looking ahead: the future of franchising

Franchising in the UK remains largely unregulated, but that position is under increasing scrutiny. A 2025 House of Commons debate highlighted concerns about the imbalance of power between franchisors and franchisees, particularly where small business owners bear significant risk with limited influence over the relationship.

At the same time, wider regulatory pressures, around consumer protection, employment practices and brand accountability, are reshaping expectations. Even without formal reform, franchisors are expected to exercise greater oversight, and franchisees are becoming more alert to contractual risk.

The direction of travel is clear. Franchising is no longer viewed purely as a commercial model, but as one that raises broader questions of fairness and accountability.

Our Commercial team is experienced in advising both franchisors and franchisees across a range of franchise structures. If you would like to discuss your options or review an existing arrangement, please do get in touch.