With a franchise, a company licences its processes, intellectual property (e.g., trademarks), trade secrets and proprietary knowledge to an entrepreneur for a one-time fee and ongoing annual royalties.
An entrepreneur who buys a franchise is called a franchisee. The business that originally developed the products, services and proprietary knowledge being licenced is called the franchisor.
Franchising is a popular way to start a business and is prominent in the food industry. It gives an entrepreneur access to a franchise brand, marketing and ready-made operational model.
More about the franchise model
In the beginning, a franchised business relies heavily on the brand and other licenced aspects of the franchisor. Over time, if it is successful, the business matures and develops its own reputation. In this case, the value of the originally franchised brand and intellectual property may diminish for the entrepreneur, yet he or she still has to pay ongoing royalties for those things.