On the surface, chains and franchises can seem the same, but they are pretty different forms of small business ownership/operation. Here are the differences between a franchise and a chain
Characteristics of a franchise
Here, a franchisee (the entrepreneur), buys the right to market and sell certain products and services from a franchisor (the person who sells the franchise) through a legal agreement. Fees and royalties (a share of the income) are then paid to the franchisor over a specific period of time. The franchisee is in charge of operations, finances and HR for his or her specific location.
There are many different types of franchise agreements, all with different responsibilities, purchases, policies, procedures and rights. These are often outlined in the agreement and operation manual to ensure consistency across locations. Consistency is very important in franchising.
Although the fast food industry most often comes to mind when thinking about franchises, there are lots of industries that have them, including automotive, real estate, accommodations, business services and retail. If you’ve ever stopped in at a Boston Pizza, 7-Eleven or a UPS Store, you’re familiar with what a franchise basically is.
Check out our blog post about the perks and snags of franchising.
Characteristics of a chain
Chain stores open different locations of the business that’s usually under one main corporate ownership – like Mark’s Work Wearhouse, Hard Rock Cafe and Costco. This is the key difference. Franchise locations each have different owners, reporting to the main franchisor. But each chain location doesn’t have a different owner – each chain location is owned by the corporate office.
Here’s a bit of chain business trivia for you: Remember W H Smith bookstores, that eventually became part of the Chapters empire? Founded in 1792, it eventually became the world’s first chain!