As someone interested in owning a business or even if you watch TV, you’ve most likely seen a couple of episodes of Shark Tank.  During the innovators’ presentation, you hear the words franchising and licensing thrown around quite a lot among the show’s Sharks.  They debate how a business should run and ultimately decide to offer a sum of money for a percentage of the company. 

So what do franchising and licensing mean, and what are the differences between the two? 

Keep reading to find out! You may even consider getting into one of the two business methods at the end of this article! 

What is Franchising?

Do you remember the show Undercover Boss? In the show, owners of businesses went into their stores pretending to be a new employee to learn what goes on daily.  Throughout the show, get valuable insight into what their employees and business need to succeed.  In a handful of episodes, these owners were actually Franchisors.  They own a business with an established name (Auntie Annes, Dairy Queen, Taco Bell, KFC) and sell it to a franchisee who runs it according to company-wide standards. 

The definition of franchising is taking your business and duplicating it to sell to others to start their own business under that brand name. This is called a franchise agreement. You then become a franchisor, and the person you sell your duplicated business to is the franchisee.  They pay you a fee to run the business under your name and follow your guidelines and rules for management and operations. Franchises are also held to and regulated by the Federal Trade Commission’s Franchise Rule and comply with state laws. 

In summary, the franchisee owns the business and reaps the benefits of owning an established company that allows them to make a profit and gain valuable experience. In addition, as the franchisor, you get to expand your brand and the company’s overall value, making it more profitable. 

Businesses like cleaning companies, computer repair companies, restaurants, and more have started as stand-alone businesses and decided to franchise to branch out and increase profits.  

What is Licensing?

If you go into a store like Dick’s Sporting Goods, you’ll see brand-name apparel splashed throughout the store.  Nike, Under Armour, Adidas, and the like are promoted in different spaces.  Stores like Hallmark and Target partner with Disney to create a unique product to showcase.  This is licensing.  You get approval from the brands to sell in your store however you see fit, as long as the guidelines of the licensing option are followed.

When you license a product, you get to do with it what you please, in accordance with your licensing agreement.  When a company says, “Yes, you can use my brand,” you do not OWN the brand or that business; you are simply marketing it in your business to gain profit.  

If you buy a piece of merchandise with a Disney character on it, most of the time, it doesn’t come from Disney itself, but your manufacturer with the allowance of using the artwork.  

As we mentioned above, you can also sell your product in businesses. For example, Starbucks licenses their coffee out to companies, and in turn, they can say, “We sell Starbucks!” The business does not own a Starbucks but has permission to use it according to a licensing agreement. 

Let MVision Guide You

In summary, if you have a business that you’re looking to grow, you can create more buzz by licensing with highly marketable brands. On the other hand, if you’re looking to grow as a business owner and run a business, it’s worth looking into a franchise opportunity. 

Whether you’re looking for a change in your career or simply want to own your own business, we are here to help you succeed and find the right franchise.  Here at MVision Franchising, we are experienced Franchise Consultants who have built the largest pool of franchise resales and startup concepts.  We’ve got close to two decades of experience in this industry and can pair you with a high-quality franchise that suits you best! Let’s connect by scheduling an appointment today! 

If you’re asking yourself “How much do I have to fund a business,” we have a handy tool that can help you calculate your needs in order to own into a franchise business. We also have a variety of resources, learning tools, and videos like “Best Franchises Now” to help get you started while you wait for your appointment with us!