In addition, fees are collected regularly for as long as the franchisee owns the franchise. In exchange for these payments, the franchisee will receive continued support such as marketing assistance and ongoing training opportunities. Despite its strong association with fast food, franchising is not confined to a narrow range of business segments. Not only is it used in many different industries and sectors, but elements of franchising are becoming a feature in many areas of business.
For example, car manufacturers who had been spending enormous amounts of money building up centralized assembly lines found they could more efficiently build and sell their cars by developing networks for manufacturing and retail distribution in different areas using capital provided by independent dealers. What is franchising? Find all you need to know here. Find the Best Franchises. Franchising explained. Definition and meaning.
What is Franchising? The Myth of Guaranteed Success No business method or industry sector can guarantee success , and franchising is no exception. Franchising Defined Many people feel as though they have an understanding of the concept of franchising.
There are three main types of franchises. All Rights Reserved. You have 0 pending request. For full functionality of this site it is necessary to enable JavaScript. Here are the instructions how to enable JavaScript in your web browser. Serving the consumer is the role and responsibility of the franchisee.
While every franchise is a license, not every license is a franchise under the law. Sometimes that can be very confusing. In the United States, a franchise is a specific type of licensing arrangement defined by the Federal Trade Commission and also by several states. In the United States a franchise generally exists when:. The definition of a franchise is not uniform in every state.
Some states for example, may also include a marketing plan or community of interest provision in the definition. Put another way, in a franchise a business the franchisor licenses its trade name the brand, such as BrightStar Care or Sport Clips and its operating methods its system of doing business to a person or group operating within a specific territory or location the franchisee , which agrees to operate its business according to the terms of a contract the franchising agreement.
The franchisee is responsible for the day-to-day management of its independently owned business and benefits or risks loss based on his own performance and capabilities. 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.
Find out more about franchising by visiting our frequently asked questions page here. In addition to a well-known brand name, buying a franchise offers many other advantages that aren't available to the entrepreneur starting a business from scratch. Perhaps the most significant is that you get a proven system of operation and training in how to use it. New franchisees can avoid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error.
Reputable franchisors conduct market research before selling a new outlet, so you'll feel greater confidence that there's a demand for the product or service.
The franchisor also provides you a clear picture of the competition and how to differentiate yourself from them. Finally, franchisees enjoy the benefit of strength in numbers. You'll gain from economics of scale in buying materials, supplies and services, such as advertising, as well as in negotiating for locations and lease terms.
By comparison, independent operators have to negotiate on their own, usually getting less favorable terms. Some suppliers won't deal with new businesses or will reject your business because your account isn't big enough. Once you've decided a franchise is the right route for you, how do you choose the right one? With so many franchise systems to choose from, the options can be dizzying.
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