How Franchising Works

No problem. We're here to help guide you through the franchising model and how it works. The franchising world is huge--many of the large consumer brands you've heard of are franchises--but it's also a close knit community, passionate about empowering entrepreneurs and spreading wealth and opportunity to individual, local business operators. 

The International Franchise Association says this about what a franchise is: 

A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system.

Essentially, a franchise (like Musicologie!) creates a business and then trains and supports individual business owners (franchisees) to open and operate their own versions of that business.

When you think of a franchise, the first thing you probably think of is McDonalds. And that's for good reason. Ray Croc, while not the creator of franchising or the founder of McDonalds, recognized the potential of both, and pioneered the way franchising works today. Since then, almost every industry has been impacted by franchising. While McDonalds and other fast food chains are the most visible, franchising goes far beyond fast food. Car dealers are franchises. Real estate agents are often franchises. There are franchises in plumbing and house cleaning, pet care, hotels, storage units, garbage collection, oil changes, VR gaming, and much, much more. 

While a franchise is a way to expand a product or service into many locations, just because a business has lots of locations doesn't mean it's a franchise. For example, Chipotle and Starbucks aren't franchises. In those businesses, all of the locations are owned by the corporation and NOT a local owner and operator. 

Why is that important?

That's what special about a franchise! Each location is typically owned and operated by a local individual, the franchisee. There's so many advantages to this:
 

A great franchisor guides the brand direction through research and development, and supports the franchisees with great systems, tools and training so the franchisee can live up to the brand's standards and build customer satisfaction. The franchisee funds their business, pays royalties and fees to the franchisor, and operates their business to the specifications of the franchisor. 

The support offered and the specifications delineated vary widely between franchises. Investing in a franchise or becoming a franchisor can be a great opportunity.  But before you select any franchise investment and sign any franchise agreement, do your homework, understand what the franchise system is offering and get the support of a qualified franchise lawyer.

Franchising is federally regulated, so every franchisor must provide franchisees with a document called a Franchise Disclosure Document (FDD). Every franchisee must sign a receipt that indicates they received the FDD. That document contains 23 items that delineate exactly what to expect as a franchisee. For example, Item 7 details the initial investment and Item 19 contains financial performance representations. The FDD is standardized so you can easily compare franchises to one another. In fact, some states publish FDDs from all the franchisors that are registered in that state. For example, you can go to https://www.cards.commerce.state.mn.us/ and look up any FDD for a franchisor registered in Minnesota. 

As part of Musicologie's process to ownership, we'll send you our FDD and go over it with you, answer any questions, and make sure you're comfortable with the relationship.