What is a franchise?

If you live in the United States, you know you can’t go for more than a couple of miles without seeing a business sporting a well known name. For example, it’s difficult to drive around town and not see at least one or two McDonald’s restaurants. What you may not realize is that even though all the restaurants are McDonald’s, they may all have different owners. That is because McDonald’s is what is called a franchise. The McDonald’s corporation grants the right to an individual or group of individuals to market McDonald’s food within a certain territory or region. Franchises aren’t restricted to restaurants; other examples include help clubs, financial services and cleaning services.

Purchasing a franchise provides many benefits to a new business owner rather than starting out on his/her own. Most importantly, a franchise has a business plan in place that has proven to be successful. Many small business owners fail because their business plans do not prepare them for long-term sustainability.

Franchises also provide instant name and brand recognition. Many times customers will already be familiar with the franchise so the new business owner doesn’t have to tackle the hurdle of brand building.

A final benefit is training. Typically the franchisor (the corporation) will provide extensive initial and ongoing training for a new franchisee (the individual business owner). This step is critical to the success of the new business owner, other franchisees and the franchisor.

Many times the franchisor is very strict as to how each individual franchise is operated. The overall reputation of the corporation as well as other franchisees is at stake. Therefore, when purchasing a franchise, the franchisee must agree to abide by all the rules of the franchisor. Some new business owners welcome the structure, while others find it much too strict.

One of the main drawbacks of purchasing a franchise is the substantial up-front fees. The new business owner essentially “buys” the ability to market the franchisor’s products and services. Additionally, the franchisee typically must pay a royalty to the franchisor based on profits.

Finally, many times the franchisee is required to purchase their products from the franchisor, leading to limited competition. That can also be perceived as protecting everyone involved because it ensures a consistent product across all locations.

Privacy | Terms and Conditions | Legal

Copyright 2009 - PowerHouse Imaging, Ltd